Notably, on 3 July 2016, when MAR comes into force, AIM companies will have disclosure obligations under the AIM Rules (owed to AIM Regulation) in addition to obligations under the MAR (owed to the FCA). Key disclosure obligations under MAR relate to the disclosure of inside information and disclosure of deals by PDMRs and persons closely associated with them. Disclosure obligations under MAR are discussed throughout this chapter (see also Chapter 8).
The AIM company must take care that any information it provides is not misleading, false or deceptive and does not omit anything likely to affect the import of such information, and it must provide the information no later than it is published elsewhere (AR 10).
Although it is crucial for AIM companies to keep in regular contact with their nomads to ensure that the general obligation of disclosure is not breached, there have been numerous instances of AIM companies falling foul of this obligation. For example, two AIM companies were privately censured104 and fined a total of £120,000 by the AIM Executive Panel for, inter alia, breaches of AIM Rules 10 and 11, demonstrating the seriousness with which the Exchange views the failure of an AIM company to properly communicate with its nomad.
In one of the cases, which involved a £40,000 fine, the company had received urgent enquiries from its nomad regarding press speculation and a corresponding rise in the company’s share price. In response to these enquiries, the company confirmed to its nomad that there were no new developments or corporate activities to announce. However, at the time of the nomad’s enquiries, the company was undertaking a transaction that constituted unpublished pricesensitive information. In breach of Rule 31, the company failed: (i) to let the nomad know about the transaction upon being asked the specific question whether there were any undisclosed corporate transactions in the context of a price movement; and (ii) further, to inform the nomad previously that it had been in discussions to imminently close the transaction.
In breach of Rule 10, a misleading notification was issued (with no reference to the imminent transaction) which created the impression that the company had no news to announce. The transaction was then completed and was disclosed in a notification soon after. The news was accompanied by a significant change in the company’s share price, and an investigation/ disciplinary action followed.
The framework of continuing obligations imposed on AIM companies has been extended since the entry into force of MAR. MAR is equally applicable to AIM companies as it is to companies whose shares are listed on the Main Market, the result being that AIM companies have dual disclosure obligations (i) obligations under MAR (owed to the FCA) and (ii) disclosure obligations under the AIM Rules (owed to AIM Regulation). Key disclosure obligations under MAR relate to the disclosure of inside information and disclosure of dealings by PDMRs and persons closely associated with them (or "PCAs") and are discussed throughout this chapter.
Where relevant, this Part A will discuss the disclosure obligations that have been introduced by MAR and outline where these obligations differ from those under the pre-MAR rules for AIM companies.
Where applicable, further proposed changes by the FCA to individual rules will be discussed throughout this chapter.
Article 17(1) MAR provides that issuers must inform the public as soon as possible of inside information which directly concerns the issuer, unless Article 17(4) MAR applies (which allows the disclosure of inside information to be delayed in certain circumstances).
"Inside information" is information of a precise nature that:
For these purposes, information will be “precise” if it indicates a set of circumstances which exist or may reasonably be
expected to come into existence (or an event that has occurred or may reasonably be expected to occur), where it is
specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or that event on
the prices of the financial instruments. The test therefore requires issuers to form a judgment on the likelihood of the
circumstances taking place and whether there is sufficient certainty as to what will happen to enable the effect of the information to be measured.
Central to the operation of the “inside information” test is the issue of price sensitivity. In determining the likely price significance of information, Article 7(4) MAR states that an issuer should consider whether it is information that a reasonable investor would be likely to use as part of the basis of his or her investment decisions.
Note that MAR extends the scope of the market abuse regime by providing specific definitions of inside information for commodity derivatives, emissions allowances and for persons charged with the execution of orders concerning financial instruments (and derivative instruments in relation to such products).
Subject to a very limited ability to delay disclosure, MAR provides that any required announcement must be made “as soon as possible”.
The FCA has reiterated the need for company directors to consider their general disclosure obligations (under Article 17(1) MAR) as regards to any potential inside information arising out of such regular monitoring of, for example, their companies’ cash flow position, available bank or finance facilities, and covenant compliance. When changes in the company’s circumstances are under consideration, a listed company should also consider consulting its financial advisers as early as possible.
Note that the FCA is not likely to regard the inability physically to convene a full board meeting as justifying a delay in releasing inside information. Most issuers can delegate authority to make “emergency” announcements to a small number of directors, who can quickly agree a course of action during a telephone meeting. Where an issuer is faced with an unexpected event, it may be able to issue a holding announcement.
The general disclosure obligation under Article 17(1) MAR requires that an issuer must, for a period of five years following
publication, post on its website all inside information that it is required to disclose publically. ESMA's Final Report on the
draft technical standards states that all information to be published on a website must appear in an "easily identifiable section of the website". The Law Society has clarified that issuers can comply with the requirement by posting the
information on the section of their website that contains all of the regulatory information.3
Under Article 17(10) MAR, ESMA is tasked with developing technical standards on the public disclosure of information which will be submitted to the Commission for eventual adoption. These draft standards are likely to provide further technical information regarding the publication of information on an issuer's website. ESMA published its Final Report on the draft technical standards on 28 September 2015 and it is currently with the Commission for approval.
Under Article 17(4) MAR an issuer may delay public disclosure of inside information provided that:
MAR introduces a further requirement that an issuer must notify the FCA in writing of its decision to delay an announcement immediately after the information is disclosed to the public. The notification is made using an online form and must contain certain prescribed information such as the date and time of the decision to delay disclosure and the identities of the people responsible for making that decision. The draft technical standards published by ESMA also set out the requirements for the internal records that an issuer must maintain when delaying disclosure. MAR also requires issuers to provide a written explanation of the decision to delay but currently the FCA proposes that this information will only need to be provided upon request. In any event, it is essential that issuers keep clear and comprehensive records of any decisions to delay disclosure of inside information.
Whilst accepting that “delaying disclosure of inside information will not always mislead the public”, the FCA has emphasised that developing situations should be monitored in case a disclosure is required if circumstances change.
In applying Article 17(4) MAR, legitimate interests may, in particular, relate to the following non-exhaustive circumstances:
Under Article 17(11) MAR, ESMA has published its final report dated 28 September 2015 on the guidance on the legitimate interests of issuers to delay inside information. In addition to the scenarios detailed above ESMA has also identified in its final guidance the following situations as ones in which the legitimate interests of the issuer could be prejudiced by the disclosure of information to the public:
ESMA has issued a non-exhaustive indicative list of the situations in which delay of disclosure of insider information is likely to mislead the public namely, where the inside information whose disclosure the issuer intends to delay is:
In any of these circumstances, immediate and appropriate disclosure is always necessary and mandatory however, as stated in the ESMA guidelines, there will be other circumstances where delay in disclosure would mislead the public.
The guidance given by the FCA is that a company should not be obliged to disclose “impending developments” that could be jeopardised by premature disclosure. Whether or not a company has a legitimate interest that would be prejudiced by the disclosure of certain inside information is an assessment which must be made by the company in the first instance. However, the FCA considers that other than in relation to “impending developments” or matters described above, there are unlikely to be other circumstances where delay would be justified. In November 2015, the FCA proposed removing this assertion in order to clarify that issuers could have a legitimate reason to delay disclosure in other situations. Whatever the rationale, where an issuer decides to delay disclosure, it
should follow the steps set out below.
In summary, and as a matter of good practice, an issuer considering delaying disclosure should:
Article 17(5) MAR states that it may be appropriate to allow the delay of the disclosure of inside information by credit or financialinstitutions in order to preserve the stability of the financial system. The disclosure of inside information, including information which is related to a temporary liquidity problem and, in particular, the need to receive temporary liquidity assistance from a central bank or lender of last resort, may be delayed provided that:
The FCA will ensure that the disclosure is only delayed for a period as is necessary in the public interest and it shall evaluate, at least on a weekly basis, where the conditions above are satisfied. However, in the event of any leak of such information, an immediate disclosure would be required.
Under article 17(7) MAR, where there is press speculation or market rumour concerning an issuer, the issuer should assess whether its general obligation to make an announcement has arisen. To do this, the issuer needs to assess carefully whether the speculation or rumour has given rise to a situation where the issuer has inside information.
If the press speculation or market rumour is largely accurate and the information underlying the rumour is inside information, then it is likely that the issuer can no longer delay disclosure pursuant to Article 17(4) MAR, as it can no longer ensure confidentiality of the inside information, and it should announce the inside information as soon as possible (Article 17(7) MAR).
Conversely, the knowledge that the press speculation or market rumour is false is not likely to amount to inside information. However, the FCA has previously informally acknowledged that there is a possibility that the issuer’s knowledge that a particular piece of information or story is false could, in very limited circumstances, amount to inside information. Even if it does, the FCA expects in most cases that an issuer would be able to delay disclosure (often indefinitely) in accordance with the standard set by Article 17(4) MAR.
The FCA does not usually require an issuer to make a negative statement denying a wholly unfounded rumour. If the issuer does decide to make such a denial, it should consider doing so by making a formal announcement, and where a denial is likely to affect the share price, then a formal announcement would be best practice. The FCA also suggests that an issuer should announce a negative statement over a RIS in circumstances where it is concerned that reaction to a wholly unfounded rumour is resulting in a disorderly market.
The FCA is, of course, likely to contact an issuer or its advisers if there are rumours relating to it in the media, and it will expect a full justification for the issuer’s proposed course of action and confirmation of the issuer’s true position so that it can monitor developments properly.
Under Article 18(1) MAR issuers must compile lists of all persons who have access to inside information and who are working for them either (i) under a contract of employment or (ii) otherwise performing tasks through which they have access to inside information i.e as advisors, accountants or credit rating agencies. Insider lists must be provided to the competent authority as soon as possible on request.
Under MAR, the requirements for the information to be included on the insider lists are more onerous than before. Now, the insider list must include, amongst other things, the dates and times on which access to the inside information was obtained, full names, National Identification Numbers, phone numbers and addresses of individuals.
The insider list must be updated promptly where the reason for including an individual on the list changes, where a new individual needs to be added to the list or where a person ceases to have access to inside information, and each update to the list shall specify the date and time when the change triggering the update occurred.
Issuers or any person acting on their behalf or on their account, shall take all reasonable steps to ensure that any person on the insider list acknowledges in writing the legal and regulatory duties entailed and is aware of the sanctions applicable to insider dealing and unlawful disclosure of insider information. In circumstances where another person acts on behalf of the issuer to draw up and update the insider list, the issuer remains responsible for complying with Article 18 MAR.
Insider lists need to be kept by issuers, or any person acting on their account or behalf, for a period of at least five years from the date on which they are drawn up or updated.
If, under MiFID II which is expected to enter into force in January 2018, AIM becomes a designated SME Growth Market, AIM companies will benefit from an exemption from the requirement to draw up insider lists. However, AIM is currently not defined as an SME growth market and therefore AIM companies must comply with Article 18 MAR.
An issuer must notify a RIS without delay of:
Note that following MAR coming into force, AIM Rule 17 no longer requires the disclosure of deals by directors. This is because Article 19(1) MAR requires PMDRs and PCAs to notify both the issuer and the FCA of every transaction conducted by them relating to the shares or debt instruments of the issuer or to derivatives or other financial instruments linked to them. As a result of MAR coming into force, the key differences for AIM companies are the following:
These accounts must disclose:
The guidance to the AIM Rules requires this information to be kept up to date, with details of the last date on which it was updated to be included. AIM companies will need to take appropriate legal advice on how to make available any admission documents, circulars or other shareholder publications so as not to infringe any securities laws (e.g., US securities laws) that may apply to them (e.g., by the use of “click-throughs” or appropriate legends).
Guidance on how to comply with AIM Rule 26 is available via the IR Website Best Practice Guide, which was compiled by RNS (the regulatory and financial news service of the London Stock Exchange). The guide also includes access to web templates that can be used as the basis for AIM companies to build a Rule 26-compliant website.
An AIM company must notify a RIS without delay as soon as the terms of a transaction with a related party are agreed. The announcement is required to include the details specified by Schedule 4 to the AIM Rules and a statement that with the exception of any director who is involved in the transaction as a related party, its directors, having consulted with its nomad, consider that the terms of the transaction are fair and reasonable insofar as the holders of its AIM securities are concerned.
Any agreement that would effect a reverse takeover must be:
Where shareholder approval is given for the reverse takeover, trading in the AIM securities of the AIM company will be cancelled. If the enlarged entity seeks admission, it must make an application in the same manner as any other applicant applying for admission of its securities for the first time.
Where the effect of the disposal is to divest the AIM company of all, or substantially all, of its trading-business activities, or assets and/or where an AIM company takes any action, the effect of which is that it will cease to own, control or conduct all, or substantially all, of its existing trading-business, activities or assets upon completion of the disposal or action, the AIM company will be considered an "AIM Rule 15 cash shell."
Within six months of becoming an AIM Rule 15 cash shell, the AIM company must make an acquisition or acquisitions which constitute a reverse takeover under Rule 14. For the purposes of this Rule only, becoming an investing company pursuant to Rule 8 (including the associated raising of funds as specified in Rule 8) will be treated as a reverse takeover and the provisions of Rule 14 will apply.
Where an AIM company became an "investing company" (pursuant to Rule 15) prior to 1 January 2016, the requirements of Rule 15 set out in the AIM Rules for Companies (May 2014) will continue to apply. Accordingly, if such a company does not make an acquisition or acquisitions that constitute a reverse takeover under Rule 14 or otherwise fails to implement its investing policy to the satisfaction of the London Stock Exchange within twelve months of becoming an investing company, the London Stock Exchange will suspend trading in such a company's securities pursuant to Rule 40.
Renewed focus has been placed on rules relating to the timing and accuracy of disclosures and proper consultation with nomads. In particular, the London Stock Exchange has repeatedly drawn attention to breaches of AIM Rule 10 (Principles of Disclosure), AIM Rule 11 (General Disclosure of Price-Sensitive Information) and AIM Rule 31 (Responsibility for Compliance).
The London Stock Exchange publishes full details of all AIM disciplinary notices on its website.