Unmasking Insider Trading: The Legal Landscape in Cyprus as Per MAR

The European Union’s (EU) Market Abuse Regulation (MAR) is a critical piece of legislation that regulates insider trading to maintain the integrity of financial markets. Let’s explore what insider trading is, its regulation under MAR, and the penalties for engaging in such practices, with real-life examples from recent years.

Insider Trading: Definition and Prohibition

1. What is Insider Trading? (as per MAR Article 8(1))

   • A person who possesses inside information and exploits it:
     • to acquire, dispose of, or manipulate financial instruments
     • by soliciting a third party to engage in the above activities
     • by cancelling or amending orders

2. Is Insider Trading Illegal?

   • Yes, insider trading is a regulated and illegal activity at both the EU and UK levels.
   • Market abuse results in severe consequences, such as fines and imprisonment.

The Rationale Behind the Ban

The prohibition of insider trading has the following reasons:

• Unfair advantage: Possessing insider information grants an unfair advantage to traders.
• Market distortion: Insider trading can influence stock prices disproportionately, undermining transparency.

Four Distinct Types of Insider Trading

MAR recognizes the following types of insider trading:

1. Acquiring or disposing of financial instruments based on inside information
2. Amending or cancelling orders based on inside information
3. Soliciting a third-party to acquire or dispose of financial instruments based on inside information
4. Soliciting a third-party to amend or cancel orders based on inside information

Inside Information: Definition

Inside information is any:

• Specific, non-public information
• Relating to one or more financial instruments
• That could have a significant impact on their price
• Including commodity derivatives and emission allowances

Delayed Disclosure of Inside Information

Despite the general transparency requirements, issuers or auctioned product participants may delay the disclosure of inside information if:

1. Immediate disclosure would be detrimental to their legitimate interests.
2. It is unlikely to mislead the public.
3. Confidentiality of the information can be maintained.

Proper documentation and communication with the relevant competent authority is essential in such cases.

Conclusion

Insider trading is a regulated and illegal activity under MAR, granting unfair advantages and potentially distorting markets. Organizations must prioritize insider trading policies and practices to avoid severe consequences, including fines and criminal sanctions.

Stay informed, maintain transparency, and adhere to EU insider trading regulations for a reliable financial sector in Cyprus. For more information, consult the European Securities and Markets Authority (ESMA), the national competent authority, or seek professional legal advice.