Trade bodies publish new market abuse guidance to replace Model Code

Governance institute ICSA, the GC100 group of general counsel to the UK's 100 largest publicly-listed companies and the Quoted Companies Alliance (GCA) are submitting the documents to the Financial Conduct Authority (FCA) and the London Stock Exchange for review. They include a group-wide dealing policy, dealing code and dealing procedures manual (registration required).

The trade bodies intend for the documents to be used in place of the Model Code on share dealing, which will be withdrawn from 3 July when the EU's Market Abuse Regulation (MAR) comes into force. The FCA announced in April that it would support the development of industry-led codes of practice to replace the Model Code, after a consultation found no clear consensus on what the document should be replaced with under the new regime.

Share plans and incentives expert Amy Sellers of Pinsent Masons, the law firm behind Out-Law.com, said that the documents would provide companies with a "shared resource" for drafting and operating company dealing codes, and for operating employee share plans. The granting and vesting of employee share awards is captured under MAR provisions applicable to 'relevant share transactions', she said.

"Companies and advisers are likely to find these materials a valuable resource, as they were drafted with a range of input and comment from relevant experts from different fields, and with the benefit of an exchange of views between them about the novelties and demands that MAR might present," she said.

Once in force, MAR will introduce a directly effective, harmonised approach to market abuse laws in place of the previous EU regime, which was implemented through legislation in individual member states and regulations. The regulation extends the previous regime to capture AIM companies as well as listed companies, as well as abuse that takes place on electronic trading platforms and through high-frequency trading. It will also cover offences related to the manipulation of benchmarks, such as LIBOR and EURIBOR.

The introduction of MAR has required the repeal or amendment of parts of the existing UK legal framework governing market abuse, where this is incompatible with the new regime. The Model Code, which is among the provisions to be repealed, was originally imposed by the rules of the London Stock Exchange and later became part of the Listing Rules made under the 2000 Financial Services and Markets Act (FSMA). In practice, the code was also widely used by AIM companies not captured by the Listing Rules and the civil market abuse regime when drafting their own share dealing codes.

"In the UK, the Model Code has for many years set the framework within which individual listed companies regulate a broad range of directors' dealings in shares and related instruments during close periods and at times when inside information exists," said share plans and incentives expert Lynette Jacobs of Pinsent Masons. "It has also provided an operational framework for those companies' employee share plans at such times, including several useful exemptions that are not duplicated in MAR and for which the utility of the MAR replacements remains under debate."

The FCA recently decided to remove the requirement in the Listing Rules for quoted companies to have their own share dealing codes 'no less rigorous than the Model Code', along with the code itself. However, share plans and incentives expert Suzannah Crookes of Pinsent Masons said that most, if not all, listed companies were expected to retain a share dealing code of some kind as part of their compliance efforts under the new regime.

"Retaining dealing codes should help listed companies manage their obligations under MAR in respect of PDMR [persons discharging managerial responsibilities] transactions, and also help PDMRs to satisfy theirs," she said.

"AIM companies will now be expressly required to have a share dealing code, with the relevant AIM Rule focused on MAR compliance. AIM companies will also now be required to apply their dealing code to PDMRs whether they are directors, or senior executives but not on the board; whereas the previous AIM Rule dealing restrictions applied only to directors and non-director employees likely to have inside information," she said.

"Companies and PDMRs subject to MAR will need to adapt quickly to the changed regulatory regime. They should find that easier to the extent that the new PDMR dealing environment retains some continuity with their former experience under the Model Code, or under AIM dealing codes based on the Model Code. While some substantive changes made by MAR have been understood, there could also be significant practical effects of the details of MAR that will only be appreciated once companies and PDMRs start to comply with it, and as regulators expand the rather limited guidance they have given so far," she said.