Market Abuse Regulation: The “rock star” of financial legislation

01 August 2016
Market abuse is not an unknown term in Cyprus but lately, it has become especially popular. It has been part of the financial services legislation of Cyprus for the last seventeen years, first with the introduction of the Possession, Use and Publication of Privileged Confidential Information, the Supervisory Capacity of the Securities and Exchange Commission and Other Related Matters Law of 1999 (L. 36(I)/1999), and its subsequent replacement by the Insider Dealing and Market Manipulation (Market Abuse) Law of 2005 (L. 116(I)/2005) which transposed EU Directive 2003/6/EC into Cyprus Law.
When we talk about market abuse, we generally mean insider dealing, that is, the prohibition for persons in possession of confidential information to use that information for their benefit or for the benefit of others, and market manipulation, that is, to engage in acts that result in manipulating the market in any way (either by spreading false or misleading information, or by engaging in acts that increase or decrease the prices of listed companies artificially). Such unlawful behavior in the financial markets prevents full and proper market transparency, which is the prerequisite for trading for all economic actors in financial markets.
Following the economic meltdown of Cyprus in 2013, the Market Abuse Law has become particularly popular, since it had formed the legal basis for numerous investigations carried out by the Cyprus Securities and Exchange Commission against banks (acting as issuers) and their board members and senior management that resulted in hefty fines being imposed. These fines are currently being disputed in administrative courts. Also, the Market Abuse Law has formed the legal basis for numerous criminal cases being filed by the Attorney General’s Office against former bankers and these are currently tried in the criminal courts.
Since the implementation of Directive 2003/6/EC, the increasingly global nature of financial markets and the development of new trading platforms meant that MAD was soon outdated, therefore in 2014, the new EU Market Abuse Regulation No. 596/2014EU was published. It is applicable as of July 3rd 2016. The Market Abuse Regulation (MAR) repeals and replaces Directive 2003/6/EC and all related implementing measures issued pursuant to that Directive. A new set of implementing measures and regulatory technical standards are being prepared as we speak by ESMA and the European Commission.
MAR seeks to enhance and harmonise the EU regime on market abuse even further. It will increase the scope of existing offences and introduce new offences such as attempted insider dealing, manipulation of benchmarks and commodities and enhance requirements on firms operating in the EU financial markets. It covers whistleblowers; not only regulated markets but multilateral trading facilities (MTFs) and keeps up with new technologies such as high frequency trading (HFT). MAR applies directly in each EU member state without requiring states to produce laws that implement MAR's provisions. In fact, the current L. 116(I)/2005 will have to be repealed (hopefully in September when the House of Parliament reconvenes again after the summer holidays).
The main bulk of the regulatory framework is made up of MAR; however there is also a new Market Abuse Directive (MAD II) which requires each Member State to implement legislation to ensure that market abuse is a criminal offence which can be effectively punished. We expect the relevant harmonization law to be submitted for voting soon.   
Together, MAR and MAD II are expected to improve confidence in the integrity of the European financial markets and prove useful tools in the hands of regulators.