Alain Pietrancosta

Sorbonne Law School

Brief Remarks on the Necessary Clarification of Market Abuse Prohibitions in Times of Shareholder Activism

06/11/2019

Three years after implementation of the European Market Abuse Regulation (MAR), the time has come for the general review of its application and effectiveness. The extent and content of any amendments that may be proposed as a result of this review will naturally depend on the contributions of all involved stakeholders. Mobilisation by them, to provide comments based on their experience and analysis, is therefore critical, particularly in light of the first review documents published by European authorities. There seems indeed to be a striking gap between the expectations of practitioners and the concerns expressed by European and national authorities. While the latter show a certain degree of sensitivity to real issues, including bureaucratic overload resulting from specific requirements, the more fundamental issues with the MAR are barely mentioned. Most serious appear to be: its excessive breadth; the ever-increasing ambiguity of key elements and implicit or explicit policy choices, including the central notions of “use” and “inside information”, resulting in an evasive definition of an offence which has reached the level of vagueness squared; the confusion between insider trading prohibitions and positive disclosure requirements imposed on listed issuers; and the general lack of legal certainty in its language and application, perhaps as a result of its approach to an admittedly worthy core ambition to ensure equal information among market participants. Key to success of MAR’s extensive approach to insider trading – in stark contrast to the US conception of the offence, which focuses on freedom to trade and is directed toward fiduciary duty violations – would seem to be safe harbours providing clear guidance to financial markets on what’s allowed. Unfortunately, the MAR fails to do so. In this regard, shareholder activism seems to represent an excellent test bed for various MAR provisions. It well reveals the structural weaknesses of European legislation and underlines the necessity for public normative authorities to reconcile proactively the MAR prohibitions ex ante, in accordance with existing general criminal law principles, and secure shareholder legitimate engagement, therefore minimising the risks and costs of unpredictability, arbitrariness and national divergence in the EU. The legal imperatives to do so here are in line with the economic and financial imperatives. The objective is not to take sides a priori but, if we adhere to the principle that the market as a whole would therefore function more effectively, to ensure that all market participants understand more clearly defined rules of conduct, enabling them and the markets to serve society in an optimally efficient and responsible way.

I. INTRODUCTION

There are choices of legal policy that stand out. Certainly, one such choice is to base criminal offences or administrative breaches with heavy penalties on vague general concepts and define their constituent elements using terms with uncertain content and contours. Understandably, the need to ensure the law’s effective reaction against overly convenient loopholes may convince legislators to avoid confining certain major offences in too rigid definitions. Nevertheless, we must consider the sacrifice that, on the pretext of the public good, such an option inflicts on individuals in terms of freedom, property, and security, by making them face an invasive and unevaluable threat due to the difficulty of predicting its triggering, excessively inhibiting for the prudent and ultimately costly for society. It should therefore fall upon the legislators to dissipate, to the extent possible, this threat where it is more harmful than helpful. Unfortunately, this duty of legal certainty in the presence of super-inclusive infringements is insufficiently integrated by legislators and/or regulators. In the field of taxation, the abuse of law has recently seen it progress, albeit imperfectly, with the development of the tax rulings as a counterbalance to the expansion of the offence. In the field of securities regulation, the concept of market abuse would deserve a more structural integration of this requirement, as it remains in search of many clarifications. The emergence of shareholder activism on the European financial scene makes such an effort all the more necessary, given the accusations of market abuse to which these market players may find themselves a little too systematically exposed.

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