Target's share buy-backs under the MAR regime on market manipulation

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Title: Target's share buy-backs under the MAR regime on market manipulation
Author: Kanervo, Joel
Other contributor: Helsingin yliopisto, Oikeustieteellinen tiedekunta
University of Helsinki, Faculty of Law
Helsingfors universitet, Juridiska fakulteten
Publisher: Helsingin yliopisto
Date: 2017
Language: eng
Thesis level: master's thesis
Discipline: Kauppaoikeus
Commercial law
Abstract: Share buy-backs are undertaken in the ordinary course of business by EU issuers and each year many of these issuers become the target of a tender offer. The question of significance is whether a target's share buy-backs may obstruct a tender offer in a manipulative manner. The current EU legislative regime, namely the Market Abuse Regulation (MAR, EU 596/2014), lacks clarity in this regard, as it includes an open-ended safe harbour rule under which buy-backs satisfying certain legislative criteria are exempt from the manipulation and insider trading prohibitions. This thesis seeks to investigate whether open market buy-backs by a takeover target constitute prohibited market manipulation under the MAR. The secondary purpose of this thesis is to form an interpretative framework for establishing the conditions under which buy-backs carried out under the safe harbour rule do not constitute market manipulation, and thirdly, when buy-backs that are engineered to technically comply with the safe harbour rule are so abusive as to warrant new regulation or teleological interpretation of existing rules. These questions are approached using a law and economics-oriented research method, applying economic concepts to the normative analysis of law and the empirical context. Comparative law is used as a secondary method to gain insights from regulation in the United States. Taking into account both the textual formulation of the US rules and the reasons for adopting them helps to evaluate EU regulation. The evaluation of the regulatory regime focuses on the disclosure of information related to buy-backs in determining when information has been sufficiently disclosed to reduce the gravest of information asymmetries. In addition, the potential coercive effect of target's buy-backs is studied to find out whether the buy-backs carry such market power that might fall in the scope of the prohibition on market manipulation. Particular attention is given to assessing when issuers should feel confident in carrying out buy-backs even during control contests and, conversely, when circumstances deny them the benefit of the safe harbour.

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