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...
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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.