The Optimal Scope of Disclosure by Association Regime under MAR

The managers’ disclosure regime under the Market Abuse Regulation covers certain persons “closely associated” with managers (MAR Article 3(1)(26)(d)). The anti-evasion character of this “disclosure by association” regime appears at the outset to broaden the disclosure obligation in respect of managers’ transactions as it would seem to allow for a merely formal connection in governance to constitute a sufficient link for imposing a disclosure obligation on outside legal persons that are closely associated with the inside managers.This article argues against such broad reading of the regulation and claims that the scope of the disclosure regime should be set against the information economics forming the disclosure regime’s theoretical underpinning. The model prescribed by the article suggests that the level of disclosure should be increased only until the marginal costs of disclosure (i.e. of producing and assessing disclosures) exceed its marginal benefits (i.e. the signal value of disclosure to outside investors). Against this premise, a broad interpretation of the disclosure by association regime would result in a suboptimal outcome in that it would increase disclosure costs disproportionately, while simultaneously inflating the signal value of disclosures.The article therefore presents a sufficiency test for finding an optimal disclosure regime. A disclosure by association would be merited, on investor confidence grounds, where there exists a formal connection which implies the inside manager’s influence over the decision-making process of the outside person, but to satisfy the test, an additional element of actual personal economic interest in the transactions carried out by the outside legal person would be required. The purpose of the sufficiency test is to enhance the signal value of the disclosure and it is therefore aligned with the very purpose of the Market Abuse Regulation.