Q: What is MAR?
MAR – the EU Market Abuse Regulation – was first published by the European Securities and Markets Authority (ESMA) in 2014, alongside the Directive on Criminal Sanctions for Market Abuse (CSMAD) and MAD II. The aim of the regulation is to enhance and consolidate the current EU regulation on market abuse (covered by the EU Market Abuse Directive – MAD – published in 2003 and now outdated), widening the scope of offences dealt with under the requirements.
ESMA delivered its first set of technical standards relating to MAR on 28 September 2015, which included the objective presentation of investment recommendations and disclosure of particular interests or conflicts of interest. The European Commission endorsed ESMA’s text in March this year, and it will apply directly across EU member states, without requiring individual members to legislate, from 3 July 2016. The full regulation is documented here: http://ec.europa.eu/transparency/regdoc/rep/3/2016/EN/3-2016-1403-EN-F1-…
Q: What does this mean for the industry?
Under the new regulations, salespeople and sales traders at brokerage firms are designated “experts”, making them subject to a new set of disclosure regulations closely resembling those designed for research analysts. There are two requirements for such “experts” that will have the biggest impact:
- Record and disclose a 12-month personal history of investment recommendations (Clauses 4h and 4i)
- Record and disclose whether the salesperson, or anyone affiliated to the salesperson, has a personal conflict of interest affecting the recommendation (Clause 6)
It is the first requirement that will most affect the working day of salespeople and sales traders, who will need to record and disclose every investment recommendation made to clients, whether by phone, email, instant message, or broadcast (TV, blog etc.) – a significant additional burden on the newly designated “experts”.
As experts, the sales peoples’ targeted, actionable recommendations are recognised as having value. They will therefore become more significant as sources of expertise as compared to research analysts, an impact which may be even greater in non-equity asset classes as opposed to in equities.
Q: Will this affect me?
MAR affects anyone who suggests they are knowledgeable by making a recommendation on a financial instrument traded in Europe in any class. A bond or commodity sales person or desk analyst will now have the same disclosure obligations as an equity salesperson or sales specialist, or indeed an independent analyst.
Furthermore, the regulations (if enforced as they are written) impact any financial instrument which trades anywhere in Europe – even if the instrument is not primarily a European instrument and if the person making the recommendation is not Europe-based. This means that in principle European regulators can enforce the regulation globally. In the short term this seems unlikely, but in the longer term European regulators will not wish to see “regulatory arbitrage” with sales people at an advantage in other jurisdictions.
Q: When do the new requirements come into effect?
MAR is due to be implemented on 3 July 2016.
Q: How is TIM Ideas compliant with the regulation?
The TIM service is able to capture and disclose all relevant equities-based Investment Recommendation information required by the regulator – including the recording of investment recommendations made through any other media, including telephone, chat and email.
Our solutions aim to meet the needs of:
- Sales people, for whom we have developed a set of screens across asset classes that enable recommendations to be added rapidly, where needed in bulk, and which make the required disclosures to clients automatically
- Investment managers, for whom we have developed facilities to direct email traffic appropriately, while retaining the disclosure information needed to remain compliant
Q: How much will this cost me?
For equities, our MAR solution for investment recommendations is free for firms that have existing TIM contracts. This includes:
- all of your sales and Sales Traders (not just those using TIM)
- all of your buy-recipients (not just those receiving trade ideas)
- all of your investment recommendations via any form of communication (phone, chat, email etc.), not just trade ideas.
Q: Do Compliance Officers get access to review records in your system?
Yes. Compliance Officers are able to review all data entered by the author experts in our system.
Q: If I talk to 30 clients a day and recommend them to take an action, do I need to log each call?
Yes, you need to log each recommendation you make to clients. To help ease the burden we expect many salespeople will use a workflow of emailing their planned recommendations to all of their clients at the start of the day. Through the day, they will then only have to record any new recommendations they make on calls.