REMIT and MAR differ significantly in their market abuse prosecution regimes when it comes to the obligations of proprietary traders. Temporarily?
MAR Article 16 (1) and (2)
Prevention and detection of market abuse
1. Market operators and investment firms that operate a trading venue shall establish and maintain effective arrangements, systems and procedures aimed at preventing and detecting insider dealing, market manipulation and attempted insider dealing and market manipulation, in accordance with Articles 31 and 54 of Directive 2014/65/EU.
A person referred to in the first subparagraph shall report orders and transactions, including any cancellation or modification thereof, that could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation to the competent authority of the trading venue without delay.
2. Any person professionally arranging or executing transactions shall establish and maintain effective arrangements, systems and procedures to detect and report suspicious orders and transactions. Where such a person has a reasonable suspicion that an order or transaction in any financial instrument, whether placed or executed on or outside a trading venue, could constitute insider dealing, market manipulation or attempted insider dealing or market manipulation, the person shall notify the competent authority as referred to in paragraph 3 without delay.
REMIT Article 15
Obligations of persons professionally arranging transactions
Any person professionally arranging transactions in wholesale energy products who reasonably suspects that a transaction might breach Article 3 or 5 shall notify the national regulatory authority without further delay.
Persons professionally arranging transactions in wholesale energy products shall establish and maintain effective arrangements and procedures to identify breaches of Article 3 or 5.
My conclusion is these provisions are almost identical. Almost... One small detail is different - REMIT regulates "arranging" transactions, while MAR, additionally, "executions".
Implications? Before we turn to implications, note the facts:
1. addition by ACER on 17 June 2016 of the Chapter 9 in latest (4th) edition of a REMIT Guidelines relating to obligations of PPATs (Persons Professionally Arranging Transactions) and
2. issuance by ESMA on 13 July 2016 of Questions and Answers on the Market Abuse Regulation, (ESMA/2016/1129).
The point is, on page 6 of the latter document ESMA clarifies "the obligation to detect and identify market abuse or attempted market abuse under Article 16(2) of MAR applies broadly, and "persons professionally arranging or executing transactions" thus includes buy side firms, such as investment management firms (AIFs and UCITS managers), as well as firms professionally engaged in trading on own account (proprietary traders)".
I understand, brokers, since they are arranging as well as executing transactions, are subject to both provisions.
But what about proprietary traders? They obviously execute transactions, but, basically, not arranging (they rather are not intermediaries per se).
It follows, proprietary traders are subject to Article 16(2) MAR, but not Article 15 REMIT. Luckily for proprietary traders, they are not directly influenced by the said Chapter 9 of the ACER's Guidelines (on PPATs). Why? Since this document can be assessed as particularly burdensome and bureaucratic (see Every company as a prosecutor - impressions from reading ACER's 4th edition of REMIT Guidelines).
But what"s the reason, ACER has issued so detailed Guidelines on PPATs and ESMA has not?
I think this is temporary only discrepancy. But the issue whether the ESMA's Guidelines on PPATs will be equally detailed, long and bureaucratic, as those of ACER's, remain. There is also possibility, it will be even more so...
In this case it will cover proprietary traders covered by MAR, which, by nature, are more sophisticated than companies in scope of REMIT. However, when reading these thoughts take account of significantly extended MAR's coverage, not to mention emission allowances...
What I'm trying to say?
The hypothesis that scares me is that ESMA will issue soon guidelines on PPATs analogous to ACER's and every proprietary trader (compliance buyers including) in emission allowances will have to abide by.
But, please, do not scare!
But what will be legal situation of proprietary traders in, for example, physically delivered electricity and gas? Do they have to be a prosecutor and investigate their trading partners if this risk materialises? I used to think, such a situation does not create the best environment for business negotiations, but apparently, times have changed.
Below you have the aforementioned clearance given by ESMA on 13 July 2016 in Questions and Answers on the Market Abuse Regulation, (ESMA/2016/1129).
Question [last update 30 May2016]: Does the obligation to detect and report market abuse under Article 16(2) of MAR apply to investment firms under MiFID only or do UCITS management companies, AIFMD managers or firms professionally engaged in trading on own account also fall within the scope of that obligation?
Answer: The definition of "person professionally arranging or executing transactions" laid down in point (28) of Article 3(1) of MAR is activity based, does not cross refer to definitions under MiFID and is independent from the latter, leading thus to consider that the scope of Article 16(2) of MAR is not only limited to firms or entities providing investment services under MiFID.
In the absence of any reference in the definition that would limit the scope and exclude particular categories of persons regulated by other financial European legislation, ESMA considers that the obligation to detect and identify market abuse or attempted market abuse under Article 16(2) of MAR applies broadly, and "persons professionally arranging or executing transactions" thus includes buy side firms, such as investment management firms (AIFs and UCITS managers), as well as firms professionally engaged in trading on own account (proprietary traders).
ESMA would also like to highlight that detecting and reporting suspicious orders and transactions under Article 16(2) of MAR should be applied by "persons professionally arranging or executing transactions" through the implementation of arrangements, systems and procedures that are appropriate and proportionate to the scale, size and nature of their business activity.