Questions and Answers on the common operation of the Market Abuse Directive (12/04)

26 January 2012

Introduction and Background

This was published by the European Securities and Markets Authority (ESMA) on the 9^th January this year.

The Market Abuse Directive (2003/6/EC, “MAD”), which is a key directive of the Financial Services Action Plan (FSAP) was set up to achieve a harmonized legal environment for all financial markets within the European Economic Area and came into effect on 12 October 2004. The implementation of the MAD results in an EU-wide market abuse regime.

ESMA is required to play an active role in building a common supervisory culture by promoting common supervisory approaches and practices. In this regard, ESMA has adopted and published a Q and A for Firm’s reference.

Purpose of the Document

The purpose of the document is to promote convergent implementation and application of the market abuse regime by providing responses to specific issues raised by the general public, market participants or competent authorities.

The content of the document is aimed at competent authorities to ensure that in their supervisory activities their actions are converging along the lines of the responses adopted by ESMA and at helping issuers, investors and other market participants by providing clarity on existing market abuse requirements, rather than creating an extra layer of requirements.

Amendment

The ESMA Q and A document may be updated where relevant as and when new questions or issues arise. The date on which each question was last amended will be included after each question.

The Questions and Answers: Question 1: Date last updated: January 2012

Disclosure of inside information related to dividend policy

“Question: With respect to the disclosure of information on their dividend policy and change in this policy, what is expected from issuers of shares which are used as underlying of listed derivative contracts?

Answer: (following are the words of CPA Audit, for original document please view ESMA’s full report) The definition of “insider information” includes information relating to a financial instruments issuer who might well have a significant effect on the prices of related derivatives. ESMA is aware of this possibility and acknowledges its potential to influence the price formation of equity derivatives, including futures and they wish to draw attention to this issue.

Recently a number of instances of late or incomplete disclosure of the complete details of dividend payment announcements have been noted by ESMA who wish to remind issuers that all information relating to dividend payments should be considered should this information possibly impact on the prices of the issuer’s shares, related derivatives or both.

As with any inside information disclosure should be immediate (see Article 6 of MAD) and done in a way to facilitate complete understanding by all parties in particular the public.

Investor relations units should take particular care when replying to investors’ or firms’ questions to ensure that only the information that was previously disclosed by the issuer under MAD obligations is provided in response. Selective or unintended disclosures regarding the issuers’ dividend policy should be avoided.

See full document here

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