Persons professionally arranging and executing transactions (MAR definitions)

 



 

 

Pursuant to Article 3(1)(28) of the Market Abuse Regulation (MAR) ‘person professionally arranging or executing transactions’ is "a person professionally engaged in the reception and transmission of orders for, or in the execution of transactions in, financial instruments".

 

The definition of “person professionally arranging or executing transactions” laid down in point (28) of Article 3(1) of MAR is "activity based, does not cross refer to definitions under MiFID and is independent from the latter" (ESMA's Questions and Answers on the Market Abuse Regulation (MAR) ESMA70-145-111).

 

According to Article 16 of the MAR, any person professionally arranging or executing transactions is required to establish and to maintain effective arrangements, systems and procedures to detect and report suspicious orders and transactions.

 

Such a person must notify the competent authority without delay where it has a reasonable suspicion that an order or transaction in any financial instrument, whether placed or executed on or outside a trading venue, could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation.

 

Requirements for the said systems and procedures as well as notification templates to be used are stipulated in detail in the Commission Delegated Regulation (EU) 2016/957 of 9 March 2016.

  

It is extremely important that the scope of Article 16(2) of MAR is not only limited to firms or entities providing investment services under MiFID.

 

The obligation to detect and identify market abuse or attempted market abuse under Article 16(2) of MAR applies broadly, and “persons professionally arranging or executing transactions” include buy side firms, such as investment management firms (AIFs and UCITS managers), as well as firms professionally engaged in trading on own account (proprietary traders).

 

ESMA, moreover, underlines that also non-financial firms are in the scope of the respective requirements.

 

In the aforementioned ESMA's Questions and Answers on the Market Abuse Regulation updated on 1 September 2017 ESMA explicitly stressed:

 

"Non-financial firms that, in addition to the production of goods and/or services, trade on own account in financial instruments as part of their business activities (e.g. industrial companies for hedging purposes) can be considered firms professionally arranging or executing transactions in financial instruments under Article 16(2) of MAR.

 

The fact that they have staff or a structure dedicated to systematically deal on own account, such as a trading desk, or that they execute their own orders directly on a trading venue as defined under MiFID II, are indicators to consider a non-financial firm as a person professionally arranging or executing transactions."

 

It is noteworthy that, according to Article 3(2) of the said Commission Delegated Regulation (EU) 2016/957 of 9 March 2016, persons professionally executing or arranging transactions and market operators and investment firms operating trading venues must, upon request, provide the competent authority with the information to demonstrate the appropriateness and proportionality of their systems in relation to the scale, size and nature of their business activity, including the information on the level of automation put in place in such systems.

 

 

Elements of the regulatory framework

 

 

Among the requirements of the said Commission Delegated Regulation (EU) 2016/957 of 9 March 2016, which are placed upon persons professionally executing or arranging transaction, the following are particularly noteworthy:

 

1. Appropriateness and proportionality of systems used: the requirement to provide the competent authority, upon request, with the information to demonstrate the appropriateness and proportionality of systems in relation to the scale, size and nature of business activity, including the information on the level of automation put in place in such systems;


2. Human analysis: the requirement to put in place and maintain arrangements and procedures that ensure an appropriate level of human analysis in the monitoring, detection and identification of transactions and orders that could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation;


3. Documentation's retention period: requirement to maintain for a period of five years the information documenting the analysis carried out with regard to orders and transactions that could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation which have been examined and the reasons for submitting or not submitting a suspicious transaction and order report’ (STOR). That information must be provided to the competent authority upon request.

 

 

Delegation of functions of monitoring, detection and identification of suspicious orders and transactions

 

 

Within the groups persons professionally arranging or executing transactions have the right to delegate to a legal person forming part of the same group the performance of the functions of monitoring, detection and identification of orders and transactions that could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation.

 

When such functions are centralised in this manner, the delegation requires a written agreement.

 

The person delegating those functions remains, however, fully responsible for discharging all of its obligations under MAR and its secondary legislation.

 

and must ensure the arrangement is clearly documented and the tasks and responsibilities are assigned and agreed, including the duration of the delegation.

 

 

Delegation of data analysis and of the generation of alerts necessary to conduct monitoring, detection and identification of suspicious orders and transactions

 

 

A person professionally arranging or executing transactions may, by written agreement, delegate the performance of data analysis, including order and transaction data, and the generation of alerts necessary for such person to conduct monitoring, detection and identification of orders and transactions that could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation to a third party (‘provider’).

 

Such delegation is possible also outside of company's groupings.

 

The person delegating those functions remains fully responsible for discharging all of its obligations under MAR and its secondary legislation and must comply at all times with the following conditions:

 

(a) it must retain the expertise and resources necessary for evaluating the quality of the services provided and the organisational adequacy of the providers, for supervising the delegated services and for the management of the risks associated with the delegation of those functions on an ongoing basis;

 

(b) it must have direct access to all the relevant information regarding the data analysis and the generation of alerts.

 

The written agreement in such a case must contain:

 

- the description of the rights and obligations of the person delegating the functions and those of the provider,


- the grounds that allow the person delegating the functions to terminate such agreement.

 

 

 

Market Abuse Regulation (MAR)

 

Article 3(1)(28)

 

‘person professionally arranging or executing transactions’ means a person professionally engaged in the reception and transmission of orders for, or in the execution of transactions in, financial instruments

 

Article 16

Prevention and detection of market abuse

 

1. Market operators and investment firms that operate a trading venue shall establish and maintain effective arrangements, systems and procedures aimed at preventing and detecting insider dealing, market manipulation and attempted insider dealing and market manipulation, in accordance with Articles 31 and 54 of Directive 2014/65/EU.


A person referred to in the first subparagraph shall report orders and transactions, including any cancellation or modification thereof, that could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation to the competent authority of the trading venue without delay.


2. Any person professionally arranging or executing transactions shall establish and maintain effective arrangements, systems and procedures to detect and report suspicious orders and transactions. Where such a person has a reasonable suspicion that an order or transaction in any financial instrument, whether placed or executed on or outside a trading venue, could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation, the person shall notify the competent authority as referred to in paragraph 3 without delay.


3. Without prejudice to Article 22, persons professionally arranging or executing transactions shall be subject to the rules of notification of the Member State in which they are registered or have their head office, or, in the case of a branch, the Member State where the branch is situated. The notification shall be addressed to the competent authority of that Member State.


4. The competent authorities as referred to in paragraph 3 receiving the notification of suspicious orders and transactions shall transmit such information immediately to the competent authorities of the trading venues concerned.


5. In order to ensure consistent harmonisation of this Article, ESMA shall develop draft regulatory technical standards to determine:


(a) appropriate arrangements, systems and procedures for persons to comply with the requirements established in paragraphs 1 and 2; and


(b) the notification templates to be used by persons to comply with the requirements established in paragraphs 1 and 2.


ESMA shall submit those draft regulatory technical standards to the Commission by 3 July 2016.
Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

 

 

 

 

Questions and Answers on the Market Abuse Regulation (MAR), ESMA70-145-111

 

Q6.1 Does the obligation to detect and report market abuse under Article 16(2) of MAR apply to investment firms under MiFID only or do UCITS management companies, AIFMD managers or firms professionally engaged in trading on own account also fall within the scope of that obligation? Updated: 1 September 2017

 

A6.1 The definition of “person professionally arranging or executing transactions” laid down in point (28) of Article 3(1) of MAR is activity based, does not cross refer to definitions under MiFID and is independent from the latter, leading thus to consider that the scope of Article 16(2) of MAR is not only limited to firms or entities providing investment services under MiFID.


In the absence of any reference in the definition that would limit the scope and exclude particular categories of persons regulated by other financial European legislation, ESMA considers that the obligation to detect and identify market abuse or attempted market abuse under Article 16(2) of MAR applies broadly, and “persons professionally arranging or executing transactions” thus includes buy side firms, such as investment management firms (AIFs and UCITS managers), as well as firms professionally engaged in trading on own account (proprietary traders).


Non-financial firms that, in addition to the production of goods and/or services, trade on own account in financial instruments as part of their business activities (e.g. industrial companies for hedging purposes) can be considered firms professionally arranging or executing transactions in financial instruments under Article 16(2) of MAR. The fact that they have staff or a structure dedicated to systematically deal on own account, such as a trading desk, or that they execute their own orders directly on a trading venue as defined under MiFID II, are indicators to consider a non-financial firm as a person professionally arranging or executing transactions.


It is reminded that detecting and reporting suspicious orders and transactions under Article 16(2) of MAR should be applied by “persons professionally arranging or executing transactions” through the implementation of arrangements, systems and procedures that are appropriate and proportionate to the scale, size and nature of their business activity

 

 

 

  


 

 

 

IMG 0744

    Documentation    

 

 

  

MAR - Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation), Article 3(1)(28), Article 16

 

Commission Delegated Regulation (EU) 2016/957 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the appropriate arrangements, systems and procedures as well as notification templates to be used for preventing, detecting and reporting abusive practices or suspicious orders or transactions

 

 

Questions and Answers on the Market Abuse Regulation (MAR), ESMA70-145-111 

 

 

 

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    Links    

 

 

  

 

Persons professionally arranging transactions (REMIT Definitions)

 

 

 

 

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Last Updated on Saturday, 16 September 2017 20:46
 

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