EU Listing Act: Market Soundings Regime

The rules for market soundings are strict and can only be used in specific situations. The EU Listing Act, which entered into force on 4 December 2024, has clarified that certain aspects of the market soundings regime should be seen as an opt-in regime to avoid violating the prohibition on unlawful disclosure of inside information. However, not adhering to this framework doesn't automatically render a disclosure unlawful. The EU Listing Act has also specified that there are two mandatory requirements for conducting market soundings, that always have to be complied with. 

This article, the fourth in a series on the EU Listing Act, explores these changes in detail.

Amendments under the EU Listing Act

Key changes to the market soundings regime include:

i. Mandatory requirements: The EU Listing Act clarifies that two requirements must always be met during a market sounding:

• Assess whether the disclosed information is inside information before proceeding.

• Inform recipients when the information is no longer inside information, unless the information has been publicly disclosed. 

A written record of these actions must be kept and provided to the competent authority upon request.

ii. Optional safe harbour: The other requirements set out in Article 11 are optional and ensure that a disclosing market participant (DMP) is deemed to have disclosed information within their normal duties.

iii. Definition of market sounding expanded: The definition of "market sounding" is expanded to also include communications of information not followed by any specific announcement of a transaction.  

iv. Simplified cleansing obligations: DMPs are no longer required to  notify recipients that previously disclosed information is no longer inside information if the information has been publicly announced.

Legal framework

Definition and scope of market soundings

Market soundings involve communicating with potential investors before announcing a possible transaction to gauge their interest and conditions like size, pricing or structure. They can be conducted by issuers, parties offering large quantities of financial instruments, emission allowance market participants, and third parties acting on their behalf. A person intending to make a takeover bid or merger may also disclose inside information if:

• the information is necessary to enable parties entitled to the securities to form an opinion on their willingness to offer  their securities; and 

• the willingness of parties entitled to the securities to offer their securities is reasonably required for the decision to make the takeover bid or merger. 

When conducting market soundings, it may be deemed necessary to share inside information. In principle, inside information may only be shared in the normal course of employment, profession, or duties. The MAR provides a framework for market soundings to limit the risk of unlawful disclosure of inside information. The EU Listing Act clarifies which requirements are mandatory and which serve as a safe harbour.

Mandatory requirements

To ensure authorities can obtain an audit trail of market soundings involving inside information, DMPs must:

• assess and document if the information qualifies as inside information, updating as needed; and

• notify recipients when the information is no longer inside information unless publicly announced. 

Records of these actions must be kept and provided to authorities upon request.

The safe harbour

In addition to these mandatory requirements, DMPs can follow certain steps to fall within a safe harbour. If they do, they are deemed to have disclosed information within their normal duties. To benefit from this protection under Article 11(4) MAR, DMPs must:

• obtain the recipient's consent to receive inside information; 

• inform the recipient to keep the information confidential; and

• ensure the recipient understands the prohibition on trading with such information.

DMPs must keep detailed records of all communications for at least five years, and make these available to authorities upon request. These records should include:

• the identities of recipients; 

• the timing and method of communication; and

• the content of the disclosure.

Delegated Regulation (EU) 2016/960, Implementing Regulation (EU) 2016/959, and ESMA Guidelines further establish procedural and record-keeping requirements. Note that non-compliance with these requirements does not presume unlawful disclosure. 

Conclusion

The EU Listing Act clarifies the market soundings regime without major changes, confirming that the market sounding safe harbour regime is optional. Market participants that carry out a market sounding in accordance with the safe harbour requirements benefit from full protection against the allegation of unlawfully disclosing inside information. However, a market sounding that does not meet the safe harbour requirements  is not automatically presumed unlawful. The revised regime allows each market participant to decide whether to follow the safe harbour regime. By simplifying compliance and refining its application, the EU Listing Act offers flexibility for market participants while supporting regulatory compliance.