European regulator warns social media traders not to abuse markets

Rick Steves

Non-compliance can result in sanctions, varying by member state, imposed by National Competent Authorities. These can include administrative or criminal penalties for specific infringements. The emphasis is on ensuring that investment advice on social media is transparent, accurate, and free from manipulation.

The European Securities and Markets Authority (ESMA) has reminded market participants of the importance of adhering to the Market Abuse Regulation (MAR) when sharing investment recommendations on social media.

The regulator’s warning, which is aimed at mitigating the risk of market manipulation, highlights that investment recommendations on social media need to adhere to the MAR Framework.

These includes any public communication, such as posts, videos, or social media content, offering advice or ideas about financial instruments or portfolio composition.

Hot to comply with EU’s Market Abuse Regulation (MAR)

The MAR Framework, consisting of Regulation No 596-2014 and associated regulations, sets forth specific requirements. These include:

Identification of recommendation producers: Names, job titles, and the date and time of the recommendation must be provided.
Objective presentation: Facts should be clearly separated from interpretations or opinions, and information sources must be reliable.
Disclosure of conflicts of interest: Any conflicts should be clearly stated to ensure investor awareness.

Additional requirements for professionals and experts include:

  • A summary of valuation methodologies and assumptions.
  • Investment duration, risk warnings, and update frequency.
  • Disclosure of any amendments post-disclosure to the issuer.
  • Disclosure of a net long or short position exceeding 0.5% of an issuer’s total issued share capital.

Non-compliance can result in sanctions, varying by member state, imposed by National Competent Authorities. These can include administrative or criminal penalties for specific infringements. The emphasis is on ensuring that investment advice on social media is transparent, accurate, and free from manipulation.

Key sanctions under MAR are:

Financial Penalties: Individuals or entities violating MAR may face significant fines.
Trading Restrictions: Those who breach the regulation could face restrictions or bans on trading.
Professional Bans: Offenders might be temporarily or permanently banned from participating in financial markets or holding certain financial positions.
Public Disclosure: The identities of non-compliant individuals or entities may be publicly disclosed, potentially harming their reputation.
Seizure of Profits: Profits made or losses avoided through the infringement can be confiscated.

The severity and type of sanctions depend on the specific case, considering factors like the breach’s seriousness, the responsible party’s degree of responsibility, and any past violations.

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