Explanatory Memorandum to COM(2011)651 - Insider dealing and market manipulation (market abuse)

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dossier COM(2011)651 - Insider dealing and market manipulation (market abuse).
source COM(2011)651 EN
date 20-10-2011
1. CONTEXT OF THE PROPOSAL

Adopted in early 2003, the Market Abuse Directive (MAD) 2003/6/EC introduced a comprehensive framework to tackle insider dealing and market manipulation practices, jointly referred to as 'market abuse'. The Directive aims to increase investor confidence and market integrity by prohibiting those who possess inside information from trading in related financial instruments, and by prohibiting the manipulation of markets through practices such as spreading false information or rumours and conducting trades which secure prices at abnormal levels.

The importance of market integrity has been highlighted by the current global economic and financial crisis. In this context, the Group of Twenty (G20) agreed to strengthen financial supervision and regulation and to build a framework of internationally agreed high standards. In line with the G20 findings, the report by the High-Level Group on Financial Supervision in the EU recommended that 'a sound prudential and conduct of business framework for the financial sector must rest on strong supervisory and sanctioning regimes'.

In its Communication on 'Ensuring efficient, safe and sound derivatives markets: Future policy actions' the Commission undertook to extend relevant provisions of the MAD in order to cover derivatives markets in a comprehensive fashion. The importance of efficient coverage of over the counter (OTC) transactions in derivatives has been stressed also in discussions at various international fora including the G20 and IOSCO as well as in the recent US Treasury Financial Regulatory Reform programme.

Furthermore, the Commission Communication on a Small Business Act for Europe calls on the Union and Member States to design rules according to the 'think small first principle' by reducing administrative burdens, adapting legislation to the needs of issuers, whose financial instruments are admitted to trading on SME growth markets, and facilitating the access to finance of those issuers. A review of existing sanctioning powers and their practical application aimed at promoting convergence of sanctions across the range of supervisory activities has been carried out in the Commission Communication on sanctions in the financial services sector.

The European Commission has assessed the application of the MAD and has identified a number of problems which have negative impacts in terms of market integrity and investor protection, lead to an unlevel playing field and result in compliance costs and disincentives for issuers, whose financial instruments are admitted to trading on SME growth markets, to raise capital.

As a result of regulatory, market and technological developments, gaps in the regulation of new markets, platforms and over the counter instruments have emerged. Similarly, these same factors have led to gaps in the regulation of commodities and related derivatives. The fact that regulators lack certain information and powers, and that sanctions are either lacking or insufficiently dissuasive, mean that regulators cannot effectively enforce the Directive. Finally, the existence of numerous options and discretions in the MAD, as well as a lack of clarity on certain key concepts, undermines the effectiveness of the Directive.

In light of these problems, this initiative aims to increase market integrity and investor protection, while ensuring a single rulebook and level playing field and increasing the attractiveness of securities markets for capital raising.

Contents

1.

RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS



The initiative is the result of extensive consultations with all major stakeholders, including public authorities (governments and securities regulators), issuers, intermediaries and investors.

It takes into consideration the reports published by the Committee of European Securities Regulators (CESR) on the nature and extent of the supervisory powers of Member States under the Market Abuse Directive and on the options and discretions of the MAD regime used by Member States[7].

It also takes into account a report by the European Securities Markets Expert Group (ESME)[8] which assesses the effectiveness of the MAD in achieving its primary objectives, identifies certain weaknesses and problems and sets out suggested improvements[9].

On 12 November 2008 the European Commission held a public conference on the review of the market abuse regime[10]. On 20 April 2009, the European Commission launched a call for evidence on the review of the Market Abuse Directive. The Commission services received 85 contributions. The non-confidential contributions can be consulted in the Commission website[11].

On 28 June 2010 the Commission launched a public consultation on the revision of the Directive which closed on 23 July 2010[12]. The Commission services received 96 contributions. The non-confidential contributions can be consulted in the Commission website[13]. A summary is found in Annex 2 to the impact assessment report[14]. On 2 July 2010, the Commission held a further public conference on the review of the Directive[15].

In line with its 'Better Regulation' policy, the Commission conducted an impact assessment of policy alternatives. Policy options related to regulation of new markets, platforms and OTC instruments, commodities and related derivatives, sanctions, powers of competent authorities, clarification of key concepts and reducing administrative burdens. Each policy option was assessed against the following criteria: impact on stakeholders, effectiveness and efficiency. The overall impact of all the preferred policy options will lead to considerable improvements in addressing market abuse within the EU.

First of all market integrity and investor protection will be improved by clarifying which financial instruments and markets are covered, ensuring that instruments admitted to trading only on a multilateral trading facility (MTF) and other new types of organised trading facilities (OTFs) are covered. In addition the preferred options will improve protection against market abuse through commodity derivatives by improved market transparency.

In addition they will ensure better detection of market abuse by offering the necessary powers to competent authorities to perform investigations and improve the deterrence of sanctioning regimes by introducing minimum principles for administrative measures or sanctions. The proposal for a Directive [XX] also requires the introduction of criminal sanctions.

Furthermore, the preferred options will lead to a more coherent approach regarding market abuse by reducing options and discretions for member States and will introduce a proportionate regime for issuers, whose financial instruments are admitted to trading on SME growth markets.

Overall, the preferred policy options are expected to contribute to the improved integrity of financial markets which will have a positive impact on investors' confidence and this will further contribute to the financial stability of financial markets.

DG MARKT services met the Impact Assessment Board on 23 February 2011. The Board analysed this Impact Assessment and delivered its opinion on 25 February 2011. During this meeting the members of the Board provided DG MARKT services with comments to improve the content of the Impact Assessment that led to some modifications to the text. These are:

– Clarification of how the performance of the existing legislation has been evaluated and how the evaluation results have informed the analysis of the problem;

– The addition of evidence-based estimates of the overall damage to the European economy as a consequence of abusive practices in the markets under consideration, and of the estimated overall benefits of the preferred policy options, with the necessary caveats regarding the interpretation of these estimates;

– Clarification in the baseline scenario of how other related financial regulations complement the Market Abuse Directive;

– Clarification of the content of certain policy options and improved presentation of the packages of preferred options, as well as an assessment of the overall impacts of the packages of preferred options, taking into account synergies or trade-offs between different options where they exist;

– A more proportionate analysis of the most costly measures in the assessment of the administrative burdens and costs;

– The addition in the main text of more clearly visible, concise summaries of the assessment of impacts of policy options in terms of fundamental rights, especially in the areas of investigative powers and sanctions;

– An improved justification of why the approximation of criminal law is essential for an effective EU policy on market abuse, based on studies and evidence from Member States about the effectiveness of criminal sanctions, as well as a summary of the responses to the Commission Communication on reinforcing sanctioning regimes in the financial services sector; and

– A clearer presentation in the main text of the views of stakeholders, including institutional and individual investors, on the policy options.

3.

3. LEGAL ELEMENTS OF THE PROPOSAL 3.1. Legal basis


The proposal is based on Article 114 TFEU as the most appropriate basis for a Regulation in this field. A Regulation is considered to be the most appropriate legal instrument to define the market abuse framework in the Union. The direct applicability of a Regulation will reduce regulatory complexity and offer greater legal certainty for those subject to the legislation across the Union introducing a harmonised set of core rules and contributing to the functioning of the Single Market.

4.

3.2. Subsidiarity and proportionality


According to the principle of subsidiarity (Article 5.3 TFEU), action at Union level should be taken only when the aims envisaged cannot be achieved sufficiently by Member States alone and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the Union. Although all the problems outlined above have important implications for each individual Member State, their overall impact can only be fully perceived in a cross-border context. This is because market abuse can be carried out wherever that instrument is listed, or over the counter, so even in markets other than the primary market of the instrument concerned. Therefore there is a real risk of national responses to market abuse being circumvented or ineffective in the absence of action at the Union level.

Further, a consistent approach is essential in order to avoid regulatory arbitrage and since this issue is already covered by the acquis of the existing MAD addressing the problems highlighted above can best be achieved in a common effort. Against this background the Union action appears appropriate in terms of the principle of subsidiarity.

The principle of proportionality requires that any intervention is targeted and does not go beyond what is necessary to achieve the objectives. This principle has guided the process from the identification and evaluation of alternative policy options to the drafting of this proposal.

5.

3.3. Compliance with Articles 290 and 291 TFEU


On 23 September 2009, the Commission adopted proposals for Regulations establishing EBA, EIOPA, and ESMA[16]. In this respect the Commission wishes to recall the Statements in relation to Articles 290 and 291 TFEU it made at the adoption of the Regulations establishing the European Supervisory Authorities according to which: 'As regards the process for the adoption of regulatory standards, the Commission emphasises the unique character of the financial services sector, following from the Lamfalussy structure and explicitly recognised in Declaration 39 to the TFEU. However, the Commission has serious doubts whether the restrictions on its role when adopting delegated acts and implementing measures are in line with Articles 290 and 291 TFEU.'

6.

3.4. Detailed explanation of the proposal 3.4.1. Chapter I (General Provisions) 3.4.1.1. Regulation of new markets, trading facilities and OTC financial instruments


The MAD is based on the concept of prohibiting insider dealing or market manipulation in financial instruments which are admitted to trading on a regulated market. However, since the adoption of MiFID[17], financial instruments have been increasingly traded on MTFs, on other types of OTFs, such as swap execution facilities or broker crossing systems, or only traded OTC. These new trading venues and facilities have provided more competition to existing regulated market, gaining an increased share of liquidity and attracting a broader ranger of investors. The increase in trading across different venues had made it more difficult to monitor for possible market abuse. Therefore the Regulation extends the scope of the market abuse framework applying to any financial instrument admitted to trading on a MTF or an OTF, as well as to any related financial instruments traded OTC which can have an effect on the covered underlying market. This is necessary to avoid any regulatory arbitrage among trading venues, to ensure that the protection of investors and the integrity of markets are preserved on a level playing field in the entire Union, and to ensure that the market manipulation of such financial instruments through derivatives traded OTC, such as CDS, is clearly prohibited.

7.

3.4.1.2. Regulation of commodity derivatives and the related spot commodity contracts


Spot markets and related derivative markets are highly interconnected and market abuse may take place across these markets. This raises special concerns for spot markets because the existing rules on transparency and market integrity only apply to financial and derivative markets and not to the related spot markets. The purpose of the Regulation is not to govern directly those spot markets. Indeed, any transaction or behaviour strictly within those non-financial markets should be outside the scope of this Regulation and be subject to specific and sectoral regulation and supervision as provided for in the field of energy by the proposal of the Commission for a Regulation on energy market integrity and transparency (REMIT)[18]. However, the Regulation should cover the transactions or behaviours in those spot markets which are related to and have an effect on financial and derivative markets which are within its scope. In particular, under the current MAD the lack of a clear and binding definition of inside information in relation to commodity derivative markets may allow information asymmetries in connection with those related spot markets. This means that, under the current market abuse framework, investors in commodity derivatives may be less protected than investors in derivatives of financial markets because a person could benefit from inside information in a spot market by trading on a related derivative market. For this reason the definition of inside information in relation to commodity derivatives should be aligned to the general definition of inside information extending it to price sensitive information which is relevant to the related spot commodity contract as well as to the derivative itself. This will ensure legal certainty and better information for investors. Moreover, the MAD only prohibits any manipulation which distorts the price of financial instruments. As certain transactions in the derivatives markets can also be used to manipulate the price of the related spot markets, and transactions in the spot markets can be used to manipulate derivatives markets, the definition of market manipulation should be extended in the Regulation to also capture these types of cross-market manipulation. In the specific case of wholesale energy products, the competent authorities and ESMA shall cooperate with ACER and the national regulatory authorities of the Member States to ensure that a coordinated approach is taken to the enforcement of the relevant rules relating to financial instruments and wholesale energy products. In particular, the competent authorities should take into account the specific characteristics of the definitions of [Regulation (EU) No…of the European Parliament and the Council on Wholesale Energy Market Integrity and Transparency] when they apply the definitions of the inside information, insider dealing and market manipulation of this Regulation to financial instruments related to wholesale energy products.

8.

3.4.1.3. Market Manipulation through algorithmic and high frequency trading


Financial markets are experiencing a widespread increase in the use of automated trading methods such as algorithmic trading or high frequency trading. Such trading involves computer algorithms deciding on whether an order is placed and/or on aspects of the execution of the order. A specific type of algorithmic trading is known as high frequency trading (HFT). HFT is typically not a strategy in itself but the use of very sophisticated technology to implement traditional trading strategies such as arbitrage and market making strategies. While most algorithmic and HFT strategies are legitimate there are particular automated strategies that have been identified by regulators which, if carried out, are likely to constitute market abuse. For example, this includes strategies such as quote stuffing, layering and spoofing. The definition of market manipulation in the MAD is very broad and already capable of applying to abusive behaviour no matter what medium is used for trading. However, it is appropriate to specify further in the Regulation specific examples of strategies using algorithmic trading and high frequency trading that fall within the prohibition against market manipulation. Further identifying abusive strategies will ensure a consistent approach in monitoring and enforcement by competent authorities.

9.

3.4.1.4. Attempt at market manipulation


As the MAD does not cover attempts at market manipulation, proving market manipulation requires a regulator to demonstrate that either an order was placed or a transaction was executed. However, there are situations where a person takes steps and there is clear evidence of an intention to manipulate the market but either an order is not placed, or a transaction is not executed. The Regulation expressly prohibits attempts at market manipulation, which will enhance market integrity. The existing definition of insider dealing already contained elements of attempted behaviour. These will be removed and attempted insider dealing will be qualified as a separate offence.

10.

3.4.1.5. Emission allowances


Emission allowances will be reclassified as financial instruments as part of the review of the Markets in Financial Instruments Directive. As a result, they will also fall into the scope of the market abuse framework. While most measures under the market abuse regime would apply without adaptation to the emission allowances, a few provisions will need to be adjusted in consideration of the specific nature of these instruments and structural features of this market. In particular, unlike for most classes of financial instruments, inside information disclosure as well as duties related to insider lists and managers transactions cannot be effectively addressed to the issuer of emission allowances that holds responsibilities for development and implementation of Union's climate policies. The public authorities in charge (including the Commission) are anyhow obliged to ensure fair and non-discriminatory disclosure of and access to new decisions, developments and data. Moreover, in their pursuit of Union's climate policy, the Member States, the European Commission as well as other officially designated bodies should not be limited by the duties set by the market abuse regime.

Therefore, a specific definition of inside information for emission allowances is introduced. The obligation to disclose inside information will be placed on the participants in the emission allowance market, as it is them who will hold the relevant information suitable for ad-hoc or periodic disclosure. A threshold (expressed in terms of emissions or thermal input or a combination thereof) defined in a delegated act would remove from the scope of the obligation under Art. 12 (and also Articles 13 and 14) all those entities, the activity of which on an individual basis may have no material impact on the price formation of emission allowances or the (consequential) risks of insider dealing.

Finally, due to classification of emission allowances as financial instruments under the MiFID it is possible to put all market abuse measures concerning the auctioning of emission allowances in a single rulebook and jointly with the general regime against market abuse for the secondary market.

11.

3.4.2. Chapter II (Insider Dealing and Market Manipulation) 3.4.2.1. Inside information


Inside information can be abused before an issuer is under the obligation to disclose it. The state of contract negotiations, terms provisionally agreed in contract negotiations, the possibility of the placement of financial instruments, conditions under which financial instruments will be marketed, or provisional terms for the placement of financial instruments may be relevant information for investors. Therefore, such information should qualify as inside information. However, such information may not be sufficiently precise for the issuer to be under an obligation to disclose it. In such cases, the prohibition against insider dealing should apply, but the obligation on the issuer to disclose the information should not.

12.

3.4.2.2. Level playing field among trading venues and facilities in the prevention and detection of market abuse


The increasing trading of instruments across different venues makes it more difficult to monitor for possible market abuse. According to the MiFID, MTFs can be operated by market operators or investment firms. The monitoring obligations in Article 26 of the MiFID apply to them alike. However, the obligation in Article 6 of the MAD to adopt structural provisions aimed at preventing and detecting market manipulation practices only applies to market operators. The Regulation aims to ensure a level playing field among all trading venues and facilities within its scope by requiring them to adopt the necessary structural provisions aimed at preventing and detecting market manipulation practices.

3.4.3. Chapter III (Disclosure Requirements) 3.4.3.1. Public disclosure of inside information 3.4.3.2. Article 6 of the MAD requires that issuers of financial instruments inform the public as soon as possible of inside information which directly concerns those issuers. Paragraph 2 allows those issuers under specific conditions to delay the public disclosure. Under the Regulation, issuers will be required to inform the competent authorities of their decision to delay the disclosure of inside information immediately after such a disclosure is made. The responsibility for assessing whether such delay is justified remains with the issuer. The possibility for the competent authorities where appropriate to investigate ex post whether in fact the specific conditions for the delay were met will increase investor protection and market integrity. However, if inside information is of systemic importance and it is in the public interest to delay its publication, the competent authorities will have the power to permit such a delay for a limited period in the wider public interest of maintaining the stability of the financial system and avoiding the losses which could result for example from the failure of a systemically important issuer. Insiders' lists

Insiders' lists are an important tool for competent authorities when investigating possible market abuse. The Regulation aims to eliminate national differences which have imposed so far unnecessary administrative burdens on issuers, by providing that the precise data to be included in such lists should be defined in delegated acts and implementing technical standards adopted by the Commission.

13.

3.4.3.3. Disclosure requirements for issuers whose financial instruments are admitted to trading on SME growth markets


Without prejudice to the objectives of preserving the integrity and transparency of financial markets and of protecting investors, the market abuse framework is adapted to the characteristics and needs of issuers, whose financial instruments are admitted to trading on SME growth markets. Applying the new market abuse framework of the Regulation in an undifferentiated manner to all SME growth markets may deter issuers on those markets from raising capital on the capital markets. The scope and size of the business of those issuers is more restricted and the events giving rise to the need to disclose inside information are typically more limited than those of larger issuers. The Regulation requires those issuers to disclose inside information in a modified and simplified market-specific way. Such inside information may be published by those SME growth markets, on behalf of those issuers, in accordance with a standardised content and format defined in implementing technical standards adopted by the Commission. Those issuers are also exempt, under certain conditions, from the obligation to keep and constantly update insiders' lists, and benefit from the new threshold for the reporting of manager's transactions mentioned below.

14.

3.4.3.4. Reporting of manager's transactions


The Regulation clarifies the scope of the reporting obligations in relation to manager's transactions. These reports serve important purposes by deterring managers from insider trading and providing useful information to the market about the manager's view on the price movements of the shares of the issuers. The Regulation clarifies that any transaction made by a person exercising discretion on behalf of a manager of an issuer or whereby the manager pledges or lends his shares must also be reported to the competent authorities and be made accessible to the public. Moreover, it introduces a threshold of EUR 20 000, uniform in all Member States, which triggers the obligation to report such manager's transactions.

15.

3.4.4. Chapter IV (ESMA and Competent Authorities) 3.4.4.1. Powers of Competent Authorities


Under Article 12(2)(b) of the MAD, competent authorities have the power to demand information from any person. However, there is an information gap for spot commodity markets, where there are no transparency rules or reporting obligations to sectoral regulators, when they exist. The power to request information from any person typically allows competent authorities access to all information needed to investigate suspicions of possible market abuse. But this information may not be sufficient in particular if there is no sectoral authority to supervise these spot commodity markets. The Regulation allows competent authorities access to continuous data by requiring such data to be directly submitted to them in a specified format. By gaining access to spot commodity market traders' systems, competent authorities are also able to monitor real-time data flows.

For the purpose of detecting cases of insider dealing and market manipulation, it is necessary for competent authorities to have the possibility to have access to private premises and seize documents. The access to private premises is necessary in particular where: (i) the person to whom a demand for information has already been made fails (wholly or in part) to comply with it; or (ii) where there are reasonable grounds for believing that if a demand were to be made, it would not be complied with, or that the documents or information to which the information requirement relates, would be removed, tampered with or destroyed. While currently all jurisdictions provide for access to any document, not all competent authorities have the power to enter private premises and seize documents. As a result, the risk exists that competent authorities in such cases are deprived from important and necessary evidence, and accordingly, cases of insider dealing and market manipulation might remain undetected and unsanctioned. In this context, it is important to point out that such access to private premises might constitute an interference with the fundamental rights to private and family life as recognized respectively by Article 7 of the Charter of Fundamental Rights of the European Union. It is essential that any limitation thereof be fully compatible with Article 52 of the Charter. Therefore, the competent authority of a Member State should have the power to enter private premises in order to seize documents only after having obtained prior authorisation from the judicial authority of that Member State concerned in accordance with national law, and where a reasonable suspicion exists that documents related to the subject-matter of the inspection may be relevant to prove a case of insider dealing or market manipulation in violation of this Regulation or Directive [new MAD]. The prohibitions against insider dealing and market manipulation apply to all persons. Therefore, the competent authorities need to have access to information held, not just by investment firms, but by those persons themselves and to information regarding those persons' behaviour held in databases by non-financial companies. Existing telephone and data traffic records from investment firms executing transactions, and existing telephone and data traffic records from telecom operators constitute important evidence to detect and prove the existence of insider dealing and market manipulation. Telephone and data traffic records may establish the identity of a person responsible for the dissemination or false or misleading information. Most forms of insider dealing or market manipulation involve the actions of two or more people, transferring information or coordinating their activities. Telephone and data traffic records may establish that a relationship exists between a person who has access to inside information and the suspicious trading activity of another, or to establish a link between two persons' collusive trading activity. In particular, access to telephone and data traffic records from telecom operators is considered among the most important issues for the accomplishment of the investigatory and enforcement tasks of CESR members.[19] Indeed, access to telephone and data traffic records held by telecom operators is an important and sometimes even the sole piece of evidence to establish whether inside information has been transferred from a primary insider to someone trading with this inside information. For example, this data would represent evidence in a case where a board member of a company in possession of inside information transfers inside information by phone to a friend, relative or family member who afterwards executes a suspicious transaction based on the inside information received. The telephone and data traffic records from telecom operators could be used by the regulator to demonstrate that a call had been placed by the primary insider to their friend or relative shortly before that person then called their broker to instruct them to make a suspicious transaction. The telephone and data traffic records from telecom operators would provide evidence of a link which could be used as evidence to sanction the case which otherwise would never be detected. Another example is a case where a false or misleading message is posted on an internet bulletin board to affect the price of a financial instrument. Telephone and data traffic records can serve to identify the author of the message. In addition, such records can provide evidence of a link with another person who made prior or subsequent suspicious transactions in order to prove market manipulation by the dissemination of false or misleading information. In this context, it is important to introduce a level playing field in the internal market in relation to the access by competent authorities to telephone and existing data traffic records held by a telecommunication operator or by an investment firm. Therefore, competent authorities should be able to require existing telephone and existing data traffic records held by a telecommunication operator or by an investment firm, where a reasonable suspicion exists that such records related to the subject-matter of the inspection may be relevant to prove insider dealing or market manipulation as defined in this Regulation or in the [new MAD]. It should also be clear that these records shall however not concern the content of the communication to which they relate.

As market abuse can take place across borders and different markets, ESMA has a strong coordination role and competent authorities are required to cooperate and exchange information with other competent authorities and, when applicable to commodity derivatives, with the regulatory authorities responsible for the related spot markets, within the Union and in third countries.

16.

3.4.5. Chapter V (Administrative sanctions) 3.4.5.1. Sanctions


Financial markets are increasingly integrated in the Union and offenses can have cross-borders effects in the Union. The existing divergent sanctioning regimes among Member States foster regulatory arbitrage and impair the ultimate objectives of market integrity and transparency within the Single Market for financial services. A stocktaking of the national regimes in place has, for example, revealed that the levels of pecuniary sanctions vary widely among Member States, that some competent authorities do not have certain important sanctioning powers at their disposal and that some competent authorities cannot address sanctions at natural and legal persons.[20] Therefore, this Regulation introduces minimum rules for administrative measures, sanctions and fines. This does not prevent individual Member States from fixing higher standards. The Regulation provides for the disgorgement of any profits where identified, including interests, and, in order to ensure an appropriate deterrent effect, it introduces fines which must exceed any profit gained or loss avoided as a result of the violation of this Regulation, and must be determined by the competent authorities in light of the facts and circumstances.

Moreover, criminal sanctions have a stronger deterrent effect than administrative measures and sanctions. The proposal for a Directive [XX] introduces the requirement for all Member States to put in place effective, proportionate and dissuasive criminal sanctions for the most serious insider dealing and market manipulation offences. That Directive is to be applied taking into account the provisions established in this Regulation, including prospective implementing measures. However, the definitions used for the purposes of the Directive may differ from the ones used for the purposes of this Regulation.

17.

3.4.5.2. Protection and incentives for whistleblowers


Whistle blowing can be a useful source of primary information and may alert competent authorities to cases of suspected market abuse. The Regulation enhances the market abuse framework in the Union introducing appropriate protection for whistleblowers reporting suspected market abuse, the possibility of financial incentives for persons who provide competent authorities with salient information that leads to a monetary sanction, and enhancements of Member States' provisions for receiving and reviewing whistleblowing notifications.

2.

BUDGETARY IMPLICATION



The specific budget implications of the proposal relate to task allocated to ESMA as specified in the legislative financial statements accompanying this proposal. Specific budgetary implications for the Commission are also assessed in the financial statement accompanying this proposal.

The proposal has implications for the Community budget.