Understanding Market Abuse: CySEC’s role and the MAR Framework
The efficient functioning of the European financial markets, along with public confidence in securities and derivatives, is crucial for the economic growth of the European Union (EU). Transparency plays a crucial role in maintaining market integrity and boosting public confidence. The Market Abuse Regulation (MAR), enacted at the EU level, is essential for protecting the interests of both investors and institutions, while also promoting the overall effectiveness of the market.
In this commentary, the SALVUS Regulatory Compliance team explores the concept of Market Abuse, explaining key definitions and emphasizing the importance of compliance with the MAR. Within this article you will learn about:
1. What is Market Abuse?
2. Market Abuse Regulatory framework
3. The Powers and Responsibilities of CySEC
4. What is Market Manipulation?
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1. What is Market Abuse?
Market abuse refers to unlawful behaviour in the financial markets, and it includes insider dealing, the unlawful disclosure of inside information, and market manipulation. Those actions obstruct full and proper market transparency, which is essential for ensuring fair and effective trading for all participants in integrated financial markets.
- Insider Dealing: occurs when a person in possession of inside information uses that information by acquiring or disposing for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates. It also includes cancelling or amending an order placed before the person had the inside information.
- Unlawful disclosure of inside information: arises when a person possesses inside information and shares it with another person, except where the disclosure is made in the normal course of their employment, profession or duties.
- Market manipulation: refers to a range of unlawful practices aimed at distorting or influencing the natural supply and demand dynamics of financial markets.
2. Market Abuse Regulatory Framework
The European Regulation No. 596/2014 on Market Abuse was developed and adopted at the EU level to prevent regulatory arbitrage, reduce regulatory complexity, and ensure legal certainty for market participants. In addition, Directive 2014/57/EU focuses on imposing criminal sanctions for market abuse (CS MAD). Together, MAR and CS MAD make up Market Abuse regulatory framework, which has been in effect since July 3, 2016. Both MAR and CS MAD have been incorporated into Cyprus law through Law 102(I)/2016 and Law 136(I)/2016, respectively.
The main objectives of the framework are to strengthen market transparency, harmonise market abuse rules across the EU, and broaden the scope of financial instruments covered by market abuse rules. It also aims to prohibit benchmark manipulation, enhance regulatory powers, standardise criminal offences for insider dealing and market manipulation, and set maximum penalties for serious offences.
For support with your Market Abuse regulatory obligations, contact us at info@salvusfunds.com or explore our “Compliance with Market Abuse Regulation in 2024”course for a comprehensive guide on compliance with Market Abuse in 2024.
3. Examples of Market Manipulation
Market manipulation refers to a range of unlawful practices aimed at distorting or influencing the natural supply and demand dynamics of financial markets. These practices can take various forms, including:
- Misleading or Distorting Market Signals: Creating false signals about the supply, demand, or price of financial instruments through transactions, orders, or other actions that manipulate market conditions.
- Deceptive Practices: Engaging in transactions, placing an order or any other behaviour which employs fictitious devices or other forms of deception to affect the price of financial instruments or related products.
- Disseminating False Information: Spreading false or misleading information, such as rumours, to affect market prices or create artificial price levels.
- Benchmark Manipulation: Providing false or misleading information to manipulate benchmark calculations.
4. The Powers and Responsibilities of CySEC
The Cyprus Securities and Exchange Commission (CySEC) is the competent authority responsible for overseeing and enforcing the Market Abuse regulatory framework in Cyprus. CySEC plays a vital role in ensuring compliance by gathering information, conducting investigations, carrying out inspections, and imposing sanctions under the Market Abuse Law of 2016.
CySEC holds significant enforcement powers, including the ability to impose substantial penalties and administrative sanctions for non-compliance. As a result, failing to adhere to the Market Abuse Regulation can lead to serious legal consequences. Notably, market abuse is classified as a criminal offence under Law 136(I)/2016, underscoring the importance of strict compliance.
Market abuse not only is a criminal offence but also a potential money laundering risk, as it often involves the generation of illicit assets through fraudulent practices. To prevent this, CySEC regulated entities such as Cyprus Investment Firms (CIF), Crypto Asset Service Providers (CASP), and other financial institutions must have strong monitoring systems and safeguards in place to detect and fight against market abuse.
Final thoughts
In conclusion, a good understanding of the European Market Abuse regulatory framework is crucial for preserving market integrity and enhancing investor trust by all key stakeholders of an investment firm.
Our dedicated course “Compliance with Market Abuse Regulation in 2024” , which is offered in collaboration with the Institute for Professional Excellence, provides professionals with an in-depth exploration of key topics such as insider dealing, market manipulation, and the roles of issuers and regulators. Through detailed modules on the legal framework, disclosure obligations, and CySEC’s responsibilities, the course equips participants with the essential knowledge and practical tools to effectively navigate and comply with market abuse regulations.
Professionals who undertake this course will obtain competencies to enhance company policies, procedures and controls towards the prevention, detection, and management of potential market abuse practices, by considering behaviours that consist unlawful disclosure of inside information, insider dealing and market manipulation, as well as the required characteristics of the trade surveillance systems employed.
Additionally, the SALVUS Regulatory Compliance team can assist investment firms, funds, crypto-asset service providers, and other entities regulated by CySEC in ensuring compliance with the provisions of MAR.
Do not hesitate to contact us at info@salvusfunds.com or call us at +357 7000 7898 if you require support about your Market Abuse regulatory obligations or information about our Market Abuse course on IforPE.
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The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.
