Pursuant to Article 3(1)(28) of the Market Abuse Regulation (MAR) ‘person professionally arranging or executing transactions’ (sometimes the acronym "PPAET" is used) 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. 

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See also:

 

Persons professionally arranging transactions - PPAT (REMIT Definitions)

  

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 obligation to report STOR as well as the responsibility to comply remains with the delegating person (recital 4 of the Regulation 2016/957).

 

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.