On 29 November 2019, the Financial Markets Law Committee (FMLC) published a letter responding to the European Securities and Markets Authority’s (ESMA) consultation paper on the review of the Market Abuse Regulation (MAR).
In the letter, the FMLC raises concerns that the possibility to later amend the definition of inside information is likely to be a cause for alarm to market participants. While the FMLC acknowledges that the current definition is not perfect, it notes that the market has adapted to the definition and adopted appropriate practices. The FMLC urges ESMA and the European Commission to refrain from tweaking the definition at this stage as it may cause both legal uncertainty and market uncertainty.
The FMLC also highlights issues surrounding the possibility of extending MAR to cover spot foreign exchange (Spot FX) contracts. It notes that Spot FX contracts are characteristically contracts entered into for commercial purposes e.g. as a means of payment rather than for investment purposes – ‘investment’, however is a key feature of the definition of inside information under MAR. Additionally, the FMLC points to ESMA’s own identification of technical difficulties in applying the current definition of inside information to spot FX, for instance the difficulty in identifying the issuer. The FMLC further states that the regime may require broad exemptions and safe harbours to be workable.
On a final point, the FMLC highlights that aspects of dealing with confidential information which are relevant to FX trading are also covered by the FX Global Code. It argues that if the EU chooses to regulate in this area, it may disrupt the implementation of the FX global code and could lead to the fragmentation of global FX and securities markets.