London Stock Exchange consults on MAR-driven changes to AIM Rules for Companies
The London Stock Exchange (LSE) has published AIM Notice 44 which comprises a consultation on proposed changes to the AIM Rules for Companies (AIM Rules) in advance of the Market Abuse Regulation (2014/596/EU) coming into effect on 3 July 2016. The notice is accompanied by a version of the AIM Rules marked up to show the proposed changes. Responses must be submitted on or before 12 May 2016. If these changes are made, the LSE will also make consequential amendments to the AIM Rules for Nominated Advisers and the AIM Note for Investing Companies.
The LSE highlight that the key disclosure obligations in MAR relate to the disclosure of inside information and disclosure of transactions by persons discharging managerial responsibilities (PDMRs) and those "persons closely associated" with them and that MAR will also introduce mandatory closed period rules.
It is notable that the LSE also states that, as a consequence of the proposed changes, it does not expect there to be any significant change to the approach of an AIM-quoted company and its nominated adviser to considering an AIM company's disclosure obligations under the AIM Rules. Whilst that might be the stated expectation of the LSE, there are clear elements of overlap between MAR and the AIM Rules (as proposed to be amended) and, in certain cases, a dual-analysis of both MAR and AIM Rules in relation to the same subject matter may be required. In addition, what the AIM Notice, and the proposed changes to the AIM Rules, do not reflect are the considerable additional requirements that MAR will impose on AIM companies, particularly as regards the systems and procedures required to comply with a number of matters including:
- delaying the disclosure of inside information;
- the requirement to create and maintain insider lists; and
- the new market soundings regime.
The AIM Notice is also silent on whether AIM qualifies for "SME Growth Market" status under MAR and, if it does, from when the dispensations applicable to such a market might apply.
The principal changes being consulted on are as follows:
- Rule 11 – Disclosure of price sensitive information
This builds on the Inside AIM publication issued in October 2015 which contained the LSE's preliminary views on the operation of AIM Rule 11 in light of MAR and reiterates the LSE's intention to retain the rule notwithstanding the potential duplication in regulatory oversight between it and the FCA. It is possible that the LSE considers that maintaining Rule 11 in some form is important in providing a more immediate enforcement tool against issuers, in relation to the treatment of price sensitive information.
The proposed amendments to the guidance on Rule 11 signpost an AIM company's separate MAR-driven obligations and state that Rule 11 is not intended to replicate MAR disclosure obligations (see Article 17 of MAR). It is also stated that compliance with MAR does not mean that an AIM company will have satisfied its obligations under the AIM Rules and vice versa. On first glance, it is not clear in what scenarios compliance with Article 17 may still leave an issuer non-compliant with Rule 11. It is also not entirely clear as to how the legitimate reasons for delaying the announcement of price sensitive information under Rule 11 will sit alongside the legitimate interests in delaying the announcement of inside information under MAR(1). In responding to the consultation, responders may want to explore those differences.
Finally, the guidance on Rule 11 underlines the reality of the dual regulatory approach in stating that the LSE will refer potential breaches of Rule 11, which they believe also constitute breaches of MAR, to the FCA.
- Rule 17 – Disclosure of directors' dealings
It is proposed that this rule be deleted on the basis that Article 19 of MAR introduces a comparable regime for the disclosure of transactions of PDMRs and those of persons closely associated with them. The briefing we issued on MAR earlier this month provides more detail on this regime and provides links to the templates PDMRs and AIM companies will need to use in order to disclose such dealings, and to the EC Delegated Regulation which includes a non-exhaustive list of transactions which must be disclosed.
- Rule 21 – Restrictions on dealings
Given that this is an area also covered by MAR, the LSE proposes to delete Rule 21 from the AIM Rules along with the associated definitions of "deal" and "unpublished price sensitive information".
Instead, Rule 21 will be replaced with a requirement for AIM companies to have a share dealing policy. The LSE does not intend to prescribe the content of such a policy but sets out the minimum provisions it would expect to see, including some form of clearance to deal procedure which applies to directors and "applicable employees". Existing AIM-quoted companies will be expected to update their existing policies to comply with the new Rule by 3 July 2016.
In effect, this puts AIM companies in the same position as their main market counterparts currently trying to understand which aspects of the Model Code of share dealing (which the FCA intends to delete from the Listing Rules as it is deemed to be incompatible with MAR) they can retain as the basis for a workable and MAR-compliant dealing policy. That situation is not helped by the current uncertainty, referred to in the AIM Notice, as to whether preliminary announcements bring a closed period to an end, on which question guidance has been sought from the European Securities and Markets Authority.
Again, further detail on this issue, including in relation to the permitted exceptions to the prohibition on dealing in a "closed period" under MAR, can be found in our previous briefing.
We will, of course, provide further updates, when appropriate, and certainly when the LSE issues its consultation response statement, as well as when it fulfils its stated intention to issue further guidance in Inside AIM and publish a list of FAQs on the impact of the regime.
(1) See proposed guidelines, European Securities and Markets Authority Consultation Paper (ESMA/2016/162) at p29.