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The European Securities and Markets Authority (ESMA) confirms the interpretations of Jarosław Rudy, Esq.

Article 19 (11) of the Regulation No 596/2014 of the European Parliament and of the Council (EU) on market abuse (Regulation on market abuse) and repealing the Directive 2003/6/WE of the European Parliament and of the Council and Commission Directives 2003/124/WE, 2003/125/WE and 204/72/WE („MAR”) provides that:

“Without prejudice to Articles 14 and 15, a person discharging managerial responsibilities within an issuer shall not conduct any transactions on its own account or for the account of a third party, directly or indirectly, relating to the shares or debt instruments of the issuer or to derivatives or other financial instruments linked to them during a closed period of 30 calendar days before the announcement of an interim financial report or a year-end report which the issuer is obliged to make public according to:

(a) the rules of the trading venue where the issuer’s shares are admitted to trading; or

(b) national law.”

In 2017, providing legal services, we encountered an opinion, that Article 19(11) applies to the purchase of own shares by the issuer, called a buy back. As a result of the above opinion, the issuer could not carry out a buy back during 30 days before publishing interim reports.

In our opinion, such an interpretation of Article 19(11) of MAR was not reasonable. However, in order to obtain a confirmation, we submitted an inquiry to the European Securities and Markets Security (ESMA), using a Q&A tool that is supposed to ensure the uniform application of European law.

On 12 November 2018, in point 7.10 of the updated Q&A document , ESMA responded to our inquiry and confirmed the opinion that Article 19(11) of MAR does not apply to the purchase of own shares by an issuer (buy back). Below we present the original opinion of the ESMA:

7.10 Does the prohibition in Article 19(11) MAR encompass transactions of the issuer relating to its own financial instruments even if it is the PDMRs taking the decision or bringing a previous decision into practice?

7.10 No. Article 19(11) of MAR prohibits PDMRs within an issuer, and not the issuer itself, to conduct “any transactions on its own account or for the account of a third party, directly or indirectly, relating to the share or debt instruments of the issuer [...] during a closed period of 30 calendar days” before the announcement of a financial report.

Since the actions of the PDMR, in their capacity of director or employee of the issuer, are not PDMR transactions for the account of a third party but transactions of the issuer itself, the prohibition of Article 19(11) is not applicable. 

Nevertheless, it should be noted that any transaction carried out by the issuer during a closed period should be carefully treated, as the issuer remains subject to the prohibition of insider dealing contained in Article 14 of MAR.

Therefore, where the issuer is in possession of inside information relating to its own financial instruments, it will be prevented from trading on them unless it had established, implemented and maintained the internal arrangements and procedures laid down in Article 9(1) of MAR.

ESMA Q&A Document download here.

 

Legal adviser Jarosław Rudy

 

 
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