In 2003, the Market Abuse Directive (MAD), a pioneering text in the then newly established Lamfalussy process, was presented as a cornerstone of the Financial Services Action Plan (FSAP) in view to ensuring financial market integrity within the European Union.
The directive aimed to introduce and implement dissuasive measures and appropriate sanctions in order to fight illicit behaviour such as insider dealing and market manipulation.
At the time, establishing a new legal framework had become an absolute priority in the sense that, apart from a previous directive on insider dealing (89/592/CEE), common European standards to combat market manipulation had hitherto been virtually non-existent.
On 28 June 2010, the European Commission launched a consultation on the revision of the Market Abuse Directive.
On 20 October 2011 the EU Commission released the draft for revision of the Market Abuse Directive (MAD). As expected, based on the previous consultation, this text envisages an expansion of the scope of instruments and places of negotiation covered.
Not only will it cover classical instruments like bonds or shares, but also derivatives, derivatives on commodities and emission allowances.
The two major new elements are:
- The division into two legal instruments, a regulation and a directive,
- The incorporation of an article defining EU minimum sanctions in case of market abusive behaviour.
A third item of interest is the dedicated regime for SME (Small and Medium Size Enterprises) that emphasises proportionality of measures and obligations.
Finally, the draft regulation envisages considering as abusive practice not only the act itself, but also the intent of abusing markets, and in the categories of market abusive practices feature three references to High Frequency Trading.
Transposed in Luxembourg by the Law of 9 May 2006 on market abuse, amended by the Law of 26 July 2010, the directive no longer reflects the specificities of today’s financial markets. The current revision of the directive is thus a key element in the European Commission’s strategy to strengthen the regulatory framework for financial services, with a view to reducing, until 2012, administrative burdens faced by EU companies by 25%.