In September 2011, an unofficial draft of the European
Commission's (the Commission) proposals for a new market abuse regime covering
insider dealing and market manipulation (MAD II), was received by certain
market participants. MAD II is intended to amend and update the existing Market
Abuse Directive 2003/6/EC (MAD).
The primary function of MAD was the introduction of a
framework for tackling market abuse. However, over the 8 years since MAD came
into force, the Commission has identified a number of problems that have
emerged as a result of regulatory, market and technological developments,
It was in the context of these problems that the Commission
undertook to carry out a review of MAD and then in turn published its MAD II
proposals. The major, and for the purposes of this note, most important
provisions will be set out in a new market abuse regulation (the Regulation),
which will be directly effective throughout European Union member states from when
it is passed, on a par with national laws. The elements of MAD II dealing with
criminal sanctions will be set out separately in a new directive (the
Directive), which will require separate legislative implementation by the
government in each member state within two years of coming into force.
Key changes proposed by the draft of MAD II are explained
below, including the provisions that extend its scope to cover commodities
derivatives. These include a specific definition of what constitutes "inside information"
with respect to commodities, the categorisation of emission allowances and a
broader range of commodities derivatives as "financial instruments", and the extension
of the market abuse offences to cover spot physical commodity markets.
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