Commission Directive 2004/72/EC of 29 April 2004 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards accepted market practices, the definition of inside information in relation to derivatives on commodities, the dr...

Summary of the initiative

Objective(s)
The Market Abuse Directive 2003/6/EC (MAD) provides there is no market manipulation, as defined in Article 1(2)(a), as long as transactions or orders to trade on financial markets are in line with "Accepted Market Practices" (AMP). This defence against allegation of market manipulation is only available if, in addition, the entity who entered into the transaction or issued the order establishes that its reason for so doing was legitimate.
Article 1 (5) of the Directive defines AMP as practices "reasonably expected in one or more financial markets and ... accepted by the competent authority in accordance with guidelines adopted by the Commission". Example: the London Metal Exchange Document "Market Aberrations: the Way Forward", October 1998, which governs the behaviour expected of long position holders in the metal market. (AMP is not a safe harbour, a concept dealt with in Articles 7 and 8 of Directive 2003/6/EC and Regulation 2273/2003 covering buy back programs and stabilisation). The decision as to whether behaviour constitutes an AMP is a matter of national discretion and the responsibility of individual CESR (Committee of European Securities Regulators) members, because specific national markets operate in a specific context.
Article 2 of the Commission Directive 2004/72/EC implementing MAD describes the non exhaustive factors that a competent authority should take account of before deciding whether to accept a market practice. These include:
"(a) the level of transparency of the relevant market practice to the whole market; (b) the need to safeguard the operation of market forces and the proper interplay of the forces of supply and demand; (c) the degree to which the relevant market practice has an impact on market liquidity and efficiency; (d) the degree to which the relevant practice takes into account the trading mechanism of the relevant market and enables market participants to react properly and in a timely manner to the new market situation created by that practice; (e) the risk inherent in the relevant practice for the integrity of, directly or indirectly, related markets, whether regulated or not, in the relevant financial instrument within the whole Community; (f) the outcome of any investigation of the relevant market practice by any competent authority or other authority mentioned in Article 12(1) of MAD, in particular whether the relevant market practice breached rules or regulations designed to prevent market abuse, or codes of conduct, be it on the market in question or on directly or indirectly related markets within the Community; (g) the structural characteristics of the relevant market including whether it is regulated or not, the types of financial instruments traded and the type of market participants, including the extent of retail investors participation in the relevant market."
If a market practice is deemed acceptable on one particular market and unacceptable on another comparable market within the EU, the Commission Directive states that discussion could take place in CESR. Competent authorities should ensure a high degree of consultation and transparency vis-à-vis market participants and end-users. As a consequence they must publicly disclose their decisions and send them to CESR for publication on its website in a standard format with a link to the national text.

Description of the Initiative

    Sector

    Sector

    Contact Point - Commission
    FISMA C3

    Self/Co-Regulation Basic Act

    LEGISLATIVE ACT
    Year
    2004
    Title of Act
    Commission Directive 2004/72/EC of 29 April 2004 implementing Directive 2003/6/EC of the European Parliament and of the Council as regards accepted market practices, the definition of inside information in relation to derivatives on commodities, the drawing up of lists of insiders, the notification of managers´ transactions and the notification of suspicious transactions, Official Journal L 162, 30.4.2004, p. 70-75.

    Geographical Coverage

    Global coverage
    Participating Countries
    Austria

    Description

    Problems that lead to the introduction of Self/Co-Regulation and the adoption of the Founding Act
    Insider dealing and market manipulation; Market aberrations touching at market and price transparency, fictious transactions, etc; Such aberrations are for instance described by the London Metal Exchange "Market aberrations: the way forward".
    Target Group(s)
    Financial market associations and companies developing Market Practices (MP); National authorities approving Market Practices; Committee of European Securities Regulators acts as a mediator at EU level.
    Type of Instrument(s)
    Accepted Market Practices
    Level(s) at which private rules should be defined and applied
    Type of Financing
    -
    Type of Monitoring
    Conduct an initial survey of compliance capacity of future regulateesConduct regular visits and spot checksInitiate complaints proceduresMaintain database of those bounded by the normsProduce regular reportsReceive complaints and verify if norms were breached or notReflexive dialogue with the - stakeholdersOther
    European Commissionyesyes
    National public authorityyes
    International public authority
    Private regulator (code owner)
    Private independent party with a mandate (e.g. auditors)
    Self-appointed private parties (e.g. NGOs)
    Succinct description of the type of Monitoring
    The MS are responsible for scrutinising accepted market practices to determine if they lead or not to market manipulation; The Committee of European Securities Regulators (CESR) does not define EU AMPs; nor does it monitor nationally accepted AMPs. It only gathers and publishes information on AMPs, submits an Annual Report to the European Commission, which is also sent to the European Parliament and the Council. The Chair of CESR reports regularly to the European Parliament and maintains links with the European Securities Committee. In 2005 the CESR released its first set of guidance and information on the common operation of the Directive. This set provides guidance on accepted market practices in relation to market manipulation; guidance on what CESR Members consider constitutes market manipulation; and guidance and a common format for reporting suspicious transactions.
    Type of Enforcement
    Faming, shaming and blamingJudicial sanctionsMembership suspension/exclusionPrivate finesOther
    Private Regulator
    Private independent party with a mandate (e.g. auditors)
    Court system
    Alternative dispute resolution (ADR) / Online dispute resolution (ODR)
    Succinct description of the type of Enforcement
    Compliance with AMPs is contemplated by the authorities merely to establish whether market manipulation has taken place (such compliance serves as a defence against market manipulation charges); At national level, private organisations establishing AMP may sanction disregard for AMPS. CESR-Pol is developing the framework on supervisory and enforcement cooperation (in cases of specific investigations, the CESR-Pol network cooperates to facilitate the work of the responsible authority by conducting joint investigations on bilateral and multilateral level). But this concerns market manipulations rather than non compliance with AMP.