MFSA Circular on the execution of Buy-Back Programmes in accordance with MAR
By: Ganado Advocates
The Malta Financial Services Authority (“MFSA”) has issued a circular on the 23 June 2022 focusing on share buy-back programmes under the Market Abuse Regulation (“MAR”). In its circular, the MFSA makes some interesting observations in relation to the status of share buy-backs locally, and also provides useful, best practice recommendations to the market.
Given that issuers are likely to always be in possession of inside information, any share buy-back which they carry out will likely be caught by one of the market abuse prohibitions set out in MAR. However, in recognition of the fact that share buy-backs “can be legitimate for economic reasons” (Recital 11 of MAR) and important for the proper functioning of the capital markets, article 5 of MAR establishes a safe harbour for share buy backs by creating a framework within which issuers can buy back their own shares, while enjoying immunity from the general prohibitions of insider dealing, unlawful disclosure of inside information and market manipulation (which together constitute the concept of ‘market abuse’ under European law). This said, it is important to highlight that a share buy-back conducted outside the framework of article 5 will not itself be automatically deemed to constitute market abuse.
The MFSA’s outlook
In its circular, the MFSA notes that while a considerable number of local buy-backs have taken place since the coming into force of MAR, these have predominantly been in relation to bonds, and have therefore not benefitted from the safe harbour provided under Article 5 of MAR (which applies exclusively to shares). Interestingly, however, the MFSA comments that even in those (limited) instances where local issuers have carried out share buy-backs, they have opted to do so without adhering to the criteria set out in MAR and Commission Delegated Regulation 2016/1052, which sets out detailed rules in connection with the safe harbour – thereby willingly foregoing the advantages of the safe harbour under Article 5 of MAR. In such an event, the share buy-back would need to be examined independently so as to ensure that there has been no breach of articles 14 and 15 of MAR prohibiting insider dealing, unlawful disclosure of inside information and market manipulation.
The MFSA goes on to attribute this trend to the onerous nature of the requirements under article 5 of MAR and the Commission Delegated Regulation, but nevertheless encourages issuers (where possible) to comply with these requirements in order to ensure market integrity and a high degree of transparency across the local markets, even where a buy-back does not fall within the scope of MAR.
Salient aspects of the MFSA’s overview
In the circular, the MFSA provides an overview of the applicable conditions and criteria emanating from article 5 of MAR and the Commission Delegated Regulation. For the purposes of this update, we have chosen to focus on some of the more salient aspects of the MFSA’s commentary, including:
- the MFSA’s reminder to the market that transactions related to buy-backs ‘over-the-counter’ (“OTC”) are not covered by the safe harbour under article 5 of the MAR;
- the MFSA’s good practice recommendation to market participants to ensure that any information disclosed to the public is readable and understandable, and that information disclosed in accordance with the Commission Delegated Regulation on all transactions relative to the share buy-back programme must be disclosed not only on a standalone transaction basis, but also on an aggregated basis; and
- the MFSA’s expectation for all issuers to comply with the requirements of MAR and the Commission Delegated Regulation going forward (particularly where public disclosures and price conditions are involved), and its intention to request explanations, and documentation substantiating those explanations, from market participants engaging in buy-backs in order to ensure full and proper adherence with the provisions of MAR.