Delay under Article 17(4) of the MAR

The issuer or emission allowance market participant can delay disclosure of inside information to the public, on its own responsibility, if immediate disclosure is likely to prejudice its legitimate interests, delay of disclosure is not likely to mislead the public and the issuer or emission allowance market participant is able to ensure the confidentiality of that information (Article 17(4) of the MAR).

The second subparagraph of Article 17(4) of the MAR expressly clarifies that a delay is also possible in protracted processes, provided that the conditions for this are fulfilled.

The issuer is required to regularly review whether the conditions for a delay are still fulfilled. Once the reasons for the delay are no longer fulfilled, the disclosure must be made public as soon as possible provided that there is still inside information subject to the disclosure obligation. There could be situations in which the inside information subject to the disclosure obligation no longer applies or is no longer relevant during the period of delay. The legislator consciously accepted a situation where such inside information will no longer be disclosed and BaFin will not be notified about the delay.

If inside information still exists once the reasons for delay are no longer fulfilled, it must be disclosed in the version existing at the time of the disclosure.

If inside information exists, the issuer may first examine the conditions for delay and also seek external expert advice for this purpose – without this being classified as culpable delay. However, this examination and the time it takes must not be abused and must be commissioned or initiated without undue delay.

Decision to delay disclosure

A resolution by the issuer is needed to effectively delay disclosure. The delay must therefore be actively resolved, see the first sentence of Article 17(4) of the MAR.¹

If inside information is not disclosed as soon as possible and if no delay is resolved under Article 17(4) of the MAR, this constitutes an infringement of Article 17 of the MAR, even if, in theory, it would have been possible to delay disclosure.

As a general principle, responsibility for the decision to delay disclosure lies with the management board, which has the option to delegate the decision to a lower-level ad hoc committee controlled by the management board or to a full member of the management board. At least one full member of the management board should participate in a decision by a committee to delay disclosure.²

However, in cases where the supervisory board is objectively primarily responsible (for example the appointment and dismissal of management board members under section 84 of the AktG), a conclusive ancillary competence of the supervisory board regarding the decision to delay disclosure must be presumed. In these cases, any decision to delay disclosure must be taken by way of a supervisory board resolution, which may also be delegated to a lower-level ad hoc committee controlled by the supervisory board or to a full member of the supervisory board. In this case, too, at least one full member of the supervisory board should participate in a decision by a committee to delay disclosure.

By contrast, subsequent disclosure remains the responsibility of the management board (see section 111 (4) sentence 1 of the AktG). It must therefore be ensured internally in the company that the inside information concerned is communicated by the supervisory board to the management board without undue delay when the conditions set out in Article 17(4) of the MAR are no longer met.

Legitimate interests

Point (a) of the first subparagraph of Article 17(4) of the MAR initially requires legitimate interests of the issuer or emission allowance market participant. Recital (50) of the MAR provides non-exhaustive circumstances that relate to legitimate interests and that may exempt an issuer from the obligation to disclose inside information as soon as possible:³

• These include, for example, ongoing negotiations or related elements where the outcome or normal pattern of those negotiations would be likely to be affected by public disclosure. In particular, in the event that the financial viability of the issuer is in grave and imminent danger, although not within the scope of the applicable insolvency law, public disclosure of information may be delayed for a limited period where such a public disclosure would seriously jeopardise the interest of existing and potential shareholders by undermining the conclusion of specific negotiations designed to ensure the long-term financial recovery of the issuer.
• As another example of the existence of legitimate interests, recital (50) of the MAR cites decisions taken or contracts made by the management body of an issuer that need the approval of another body of the issuer in order to become effective, where the organisation of such an issuer requires the separation between those bodies, provided that public disclosure of the information before such approval, together with the simultaneous announcement that the approval remains pending, would jeopardise the correct assessment of the information by the public.

Taking these requirements into account, and based on Article 17(11) of the MAR, ESMA published clarifying MAR Guidelines for issuers on delay in the disclosure of inside information.⁴ BaFin has stated that it will follow these Guidelines and includes them as part of its administrative practice to expand on the conditions set out in Article 17(4) of the MAR.⁵

Under the Guidelines, the following non-exhaustive circumstances are likely to prejudice the issuer’s legitimate interests (paragraph 8):

• The issuer is conducting negotiations, where the outcome of such negotiations would likely be jeopardised by immediate public disclosure. Examples of such negotiations may be those related to mergers, acquisitions, splits and spin-offs, purchases or disposals of major assets or branches of corporate activity, restructurings and reorganisations.⁶
• The financial viability of the issuer is in grave and imminent danger – although not within the scope of the applicable insolvency law – and immediate public disclosure of the inside information would seriously prejudice the interests of existing and potential shareholders by jeopardising the conclusion of the negotiations designed to ensure the financial recovery of the issuer.⁷

• The inside information relates to decisions taken or contracts entered into by the management body of an issuer which need, under national law or the issuer’s bylaws, the approval of another body of the issuer (other than the shareholders’ general assembly) in order to become effective, provided that:

  • immediate public disclosure of that information before such a definitive decision would jeopardise the correct assessment of the information by the public, and
  • the issuer arranged for the definitive decision to be taken as soon as possible.
• The issuer has developed a product or an invention and the immediate public disclosure of that information is likely to jeopardise the intellectual property rights of the issuer.
• The issuer is planning to buy or sell a major holding in another entity and the disclosure of such an information would likely jeopardise the implementation of such plan.
• A transaction previously announced is subject to a public authority’s approval, and such approval is conditional upon additional requirements, where the immediate disclosure of those requirements will likely affect the ability for the issuer to meet them and therefore prevent the final success of the deal or transaction (e.g. approval of the competition authorities/cartel proviso).

The circumstances referred to in the Guidelines are examples and should not be treated as exhaustive.⁸ Article 17(4) of the MAR only protects legitimate interests of the issuer. Taking into account recital (50) of the MAR, BaFin presumes that the issuer’s interests will normally coincide with the interests of existing and potential shareholders, although the existence of legitimate interests cannot only be about implementing a delay to avoid fluctuations in share prices or any negative effects associated with the immediate public disclosure of inside information in any case, irrespective of the measures taken during the period of delay; such negative effects include purely reputational damage, for instance.

When assessing the legitimate interest, only the legitimate interests of the issuer or the emission allowance market participant may ultimately be considered, and not the exclusive interests that any third parties (e.g. negotiating parties) might have in a delay. Issuers and emission allowance market participants should therefore pay increased attention to examining the legitimate interest and comprehensively document their considerations; a blanket determination that a legitimate interest exists does not meet these requirements. It should be noted that an inadmissible delay may lead to inside information being disclosed too late.

If a delay is to be implemented in light of the involvement of the supervisory board, it should be considered that this is only permitted to the extent that and as long as the supervisory board must approve the matter in question for it to be effective. It is unimportant whether the effectiveness requirement is attributable to the law or to bylaws such as articles of association. Another condition is that the immediate public disclosure of that information before a final decision would jeopardise the correct assessment of the information by the public, and that the decision by the supervisory board must be made within a reasonable period. Accordingly, if inside information exists, the decision should be taken without undue delay, including a resolution outside the next regular meeting, for example in an extraordinary meeting of the supervisory board or by means of a written circular resolution. If appropriate, the decision can also be taken in corresponding committees in order to ensure prompt public disclosure.

It should be noted that the approval of the supervisory board (or another body, such as the annual shareholders’ meeting) is not required by law for the effectiveness of the preparation of annual financial statements by the management board. The supervisory board merely adopts the annual financial statements (see section 172 of the AktG). However, in the course of its examination in accordance with section 170 (1) of the AktG, the supervisory board can raise objections and refuse to adopt the annual financial statements (section 171 (2) of the AktG). This does not affect the preparation itself, however, so there is no requirement for approval by the supervisory board in this respect. In addition, unless special circumstances arise, it should not be assumed that the announcement of the still outstanding decision by the supervisory board would jeopardise the correct assessment of the information by the investing public. In BaFin’s view, the issuer therefore does not normally have the option to delay public disclosure solely because the figures have not yet been adopted by the supervisory board.

Not likely to mislead the public

A further condition for a legitimate delay is that delay of disclosure is not likely to mislead the public (point (b) of Article 17(4) of the MAR).

To the extent that information asymmetry exists during the period in which the issuer or the emission allowance market participant is aware of inside information and does not disclose it, this does not in itself constitute misleading the public. However, during the period of delay, the issuer may not actively give any signals that contradict the as yet undisclosed inside information.

In its concretising MAR Guidelines for issuers addressing delay in the disclosure of inside information, for example, ESMA cites the following circumstances in which delaying the public disclosure of inside information is likely to mislead the public:⁹

• the inside information whose disclosure the issuer intends to delay is materially different from the previous public announcement of the issuer on the matter to which the inside information refers to, or
• the inside information whose disclosure the issuer intends to delay concerns the fact that the issuer’s financial objectives are not likely to be met, where such objectives were previously publicly announced, or
• the inside information whose disclosure the issuer intends to delay is in contrast with the market’s expectations, where such expectations are based on signals that the issuer has previously sent to the market, such as interviews, roadshows or any other type of communication organised by the issuer or with its approval.

Ensuring the confidentiality of the inside information

During the period of delay, the issuer or emission allowance market participant must ensure the confidentiality of the delayed information (point (c) of Article 17(4) of the MAR).

The issuers and emission allowance market participants must take organisational measures to ensure that the inside information existing in the company is only communicated to persons during the delay who require it for the normal exercise of their employment, profession or duties within the issuer or emission allowance market participant. For this purpose, they must, when explaining the delay, provide evidence to the competent authority, for example about the information barriers they have put in place (see point (c)(i) of Article 4(1) of Commission Implementing Regulation (EU) 2016/1055). In addition, issuers and emission allowance market participants must put in place arrangements to disclose the relevant inside information as soon as possible where the confidentiality is no longer ensured, and provide evidence of this to the competent authority when explaining the delay (see point (c)(ii) of Article 4(1) of Commission Implementing Regulation (EU) 2016/1055).

If the confidentiality of that inside information is no longer ensured during the period of delay, the first subparagraph of Article 17(7) of the MAR requires it to be disclosed to the public as soon as possible. Under the second subparagraph of Article 17(7) of the MAR, this includes situations where a sufficiently accurate rumour that relates to the inside information has been made public.

There is no standard response in Europe to the question of when a rumour is sufficiently accurate. In BaFin’s view, a rumour is sufficiently accurate if it contains a kernel of truth (see I.2.1.4.4) and explicitly relates to inside information. This will be the case if the information that can be derived from the rumour indicates that there has been a leak of information and that the confidentiality of that inside information can therefore no longer be ensured, that is the case, if parts of the circumstances underlying the inside information have been circulated or if even details or the entire information have become known. In such cases, which are likely to be the exception rather than the rule, and which must be assessed by the issuer on a case-by-case basis, silence of the issuer or a “no comment” policy would not be acceptable.

By contrast, circulating speculations or rumours without any substance, and capriciously spreading vague information that is equivalent to circulating false or misleading information, possibly with the intention of teasing information from the issuer that sets the record straight, is not considered to be sufficiently accurate.¹⁰

By contrast, if accurate rumours are being spread, if confidentiality can no longer be ensured for other reasons, or if there is no longer any justified interest in the delay, the issuer or emission allowance market participant must disclose the inside information concerned without undue delay in the version current at the disclosure date.

The same applies to cases where an issuer or an emission allowance market participant, or a person acting on their behalf or for their account, discloses inside information to a third party in the normal course of the exercise of their employment, profession or duties as referred to in Article 10(1) of the MAR. In this case, the issuer or emission allowance market participant is required to effectively disclose this information in full, simultaneously in the case of intentional disclosure and promptly in the case of unintentional disclosure. This obligation does not apply only if the person receiving the information owes a duty of confidentiality, regardless of whether such duty is based on a law, on regulations, on articles of association, or on a contract (Article 17(8) of the MAR).

Delay under Article 17(5) of the MAR

In addition to the “general” possibility of delaying disclosure of inside information subject to an ad hoc disclosure obligation (Article 17(4) of the MAR), there is a specific delay option for credit or financial institutions under which the public disclosure of inside information, for example relating to temporary liquidity problems and, in particular, the need to receive temporary liquidity assistance, may be delayed.

As far as the scope of Article 17(5) of the MAR is concerned, the definition of credit and financial institutions in points (3) and (4) of Article 3(1) of the MAR must be applied.

Under Article 17(5) of the MAR, the conditions are that

• the disclosure of the inside information entails a risk of undermining the financial stability of the issuer and of the financial system,
• it is in the public interest to delay the disclosure,
• the confidentiality of that information can be ensured, and
• the competent authority under Article 17(3) of the MAR has consented to the delay on the basis that the conditions in points (a), (b) and (c) of Article 17(5) of the MAR are met.

Financial stability of the issuer and the stability of the financial system

Article 17(5) of the MAR requires a risk that public disclosure of the inside information could undermine the financial stability of the issuer and the stability of the financial system; it does not require a crisis to have already occurred. An assessment must therefore be made about how the market is likely to assess and react to the specific information in each individual case. A greater risk of undermining the financial stability of the issuer and the stability of the financial system should be presumed the greater the effects of the credit or financial institution’s financial distress on the financial system will be, and an overall analysis of the circumstances that have occurred and will occur in the future indicates that there will be considerable disruptions in the financial system as a whole (e.g. bank runs, fire sales or a loss of confidence in the interbank money market).

The terms “financial stability of the issuer” and “stability of the financial system” are not defined in the MAR. However, recital (52) of the MAR cites the example of inside information that is pertinent to temporary liquidity problems where institutions need to receive central banking lending, including emergency liquidity assistance from a central bank, “where disclosure of the information would have a systemic impact”. And recital (53) of the MAR states that, in respect of financial institutions, in particular where they receive central bank lending, including emergency liquidity assistance, the competent authority should assess whether the information is of “systemic importance” and whether delay of disclosure is in the public interest.

For assessing the question of whether public disclosure of the inside information entails a risk of undermining the financial stability of the issuer, BaFin uses the risk of a substantial deterioration in its financial position and viability as a decisive factor. This can be assumed, for example, in the case of considerable outflows of cash funds or a considerable depletion in the issuer’s equity. The same can be considered if measures under the German Recovery and Resolution Act (Sanierungs- und Abwicklungsgesetz – SAG) are implemented, for example if an issuer takes or has to take measures under its recovery plan (see sections 12 et seq. and 36 of the SAG) that could not be implemented in this manner if the inside information were to be made public, for example the sale of securities, in line with market conditions, to reduce the total risk exposure amount¹¹ or to realise hidden reserves.

To assess the risk to the stability of the financial system, systemic importance is likely to be the factor that is commonly taken into consideration. The risk to stability posed by systemically important institutions (globally systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs)) will often indicate systemic risk. In the case of financial institutions posing a potential systemic risk, it will be necessary to examine the criteria on the basis of which they can be classified as potentially systemically important, and whether these criteria are met in each specific case. There may therefore be a risk to stability in particular if an institution exercises critical functions (see point (35) of Article 2(1) of Directive 2014/59/EU (BRRD)¹² or section 2 (3) no. 38 of the SAG). In the case of other institutions, it should be assumed as a general rule that there is no risk to the stability of the financial system because those institutions are not systemically important. Depending on the specific circumstances in each individual case, however, it also is not possible to rule out such a risk. ESMA, too, stresses that what matters are the circumstances of each individual case, and the assessment should not be made simply on the basis of ex ante (supervisory) criteria.¹³ In such cases, however, higher demands will have to be placed on the applicant’s burden of proof.

Delay in the public interest

A delay is in the public interest if the wider public and economic interest in delaying disclosure outweighs the interest of the market in receiving the information which is subject to delay (recital (52) of the MAR). It therefore does not matter if the delay is in the issuer’s interest.

Ensuring confidentiality

Finally, a delay is only possible if the confidentiality of the inside information in question can be ensured. Please refer to section I.3.3.1.4.

Notification of intention to delay public disclosure and consent of the authority

If a credit or financial institution intends to delay the public disclosure of inside information in accordance with Article 17(5) of the MAR, it must provide the competent authority with a notification in writing of its intention to delay the disclosure of inside information in order to preserve the stability of the financial system, ensuring the completeness, integrity and confidentiality of the information (see Article 5(1) of Commission Implementing Regulation (EU) 2016/1055). The authority to which the application must be filed is governed by Article 6 of Commission Implementing Regulation (EU) 2016/522.¹⁴

The notification can be sent to BaFin using the following fax number:

+ 49 (0)228/4108-200

The credit or financial institution is considered to be exempt in the first instance when the application is filed.

The competent authority grants its consent on condition that the criteria for the delay referred to in points (a) to (c) of Article 17(5) of the MAR have been met. For this purpose, the credit or financial institution informs the competent authority and provides evidence that the conditions have been met. In turn, the competent authority consults, as appropriate, the national central bank, the macro-prudential authority or the other national authority responsible for the supervision of the issuer (Article 17(6) of the MAR).

Public disclosure of the inside information may only be delayed for a period as is necessary in the public interest. The competent authority must evaluate at least on a weekly basis whether the conditions for the delay are still met. Failing this, and if the authority does not consent to the delay, the issuer must disclose the inside information immediately (Article 17(6) of the MAR). ESMA has clarified that in such a case, the issuer cannot exercise the option to delay disclosure under Article 17(4) of the MAR if the same inside information is involved.¹⁵

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