09 Jun 2016

Getting the green light


Print version of this briefing 

PDMRs of premium listed companies currently adhere to the Model Code, the prescriptive framework that forms part of the Listing Rules. "Directors and applicable employees" of AIM traded companies abide by the AIM Rules, which contain a general prohibition on dealing in a closed period (Rule 21).  Many AIM companies adopt a share dealing code, which typically contains provisions similar to (and sometimes more stringent than) those in the Model Code.

From 3 July 2016, listed companies and those on AIM, will be brought under the same MAR regime when it comes to dealing in "securities".  The Model Code will be removed and the AIM Rules will be amended to require companies to have a dealing policy which reflects MAR.

The prohibitions on dealings in a MAR closed period (defined in the article titled "Deal or no deal") and the circumstances in which clearance to deal may be permitted do not fit squarely with the life cycle of a share plan used by UK companies in the same way as the equivalent provisions in the Model Code. Below, we consider some of the issues that are specific to share plans. For a general discussion on MAR, an explanation on when "dealings" can take place and notification requirements, please see "Deal or no deal".

Share plans

The process from setting up an employees' share plan to the exercise of an option/vesting of a share award involves several key stages and each one needs to be considered under MAR.  Take a share option, for example.  The typical life cycle involves:

  • the adoption of the share option plan;
  • the grant of an option under the plan (usually by the issuer company);
  • the receipt of the option by the PDMR (this may not require any positive action by the PDMR although the PDMR may have a right to renounce the option);
  • the vesting of the option (i.e. the point when it becomes exercisable);
  • the exercise of the option (which will include the issue or transfer of shares to the PDMR); and 
  • the sale of some or all of the resulting shares.

The key actions will vary depending on the type of share awards granted.  For example, the automatic vesting of a conditional share award (which may result in the automatic transfer of shares) does not require any action on the part of the PDMR.  In addition, "phantom awards" (being cash payments, the value of which is linked to the share price of a company) will also need to be considered in the same way as equity based awards.

With the basic rule being that transactions on a PDMR's own account cannot take place during a MAR closed period, save in certain circumstances where the issuer may permit such a transaction, the question becomes which share plan actions are permitted?

What is the current position?

The Model Code contains certain prescriptive provisions relating to share plans.  The grant, acceptance, acquisition, disposal, exercise of any option to acquire or dispose of securities in the company is a "deal" and therefore cannot happen in a prohibited period (i.e a period which is a close period (because results will be announced) or where there is inside information).  However, certain actions relating to share plans can be undertaken in a prohibited period. For example:

  • certain dealings in connection with tax advantaged (or similar) arrangements for all or substantially all employees.  There are two types of UK tax advantaged all-employee share plans – a Save As You Earn Plan and a Share Incentive Plan;
  • options can be granted to individuals who are not PDMRs if the grant could not reasonably be made at another time and failure to make the grant would indicate that the company was in a prohibited period;
  • awards of shares and the grant of options under employees’ share schemes can be made to restricted persons in a prohibited period where:
    • the employees' share scheme was not introduced or amended during the relevant prohibited period and either the terms of the scheme set out the timing of the award or grant and those terms have been approved by shareholders or summarised in a document sent to shareholders or the timing is in accordance with previous awards or grants; and
    • the terms of the employees' share scheme set out the amount or value of the award or grant or the basis on which the amount or value of the award or grant is calculated and do not allow the exercise of discretion; and 
    • the failure to make the award would be likely to indicate that the company is in a prohibited period;
  • the cancellation or surrender of an option; and
  • where a company has been in an exceptionally long prohibited period, permission to exercise an option under an employees' share scheme may be given where the option would otherwise lapse during the prohibited period and where the PDMR could not have been expected to exercise when the company was not in a close period.

What is changing under MAR?

Having become accustomed to a relatively prescriptive regime which reflects the types of share plans typically used by UK companies coupled with long standing rules of "best practice", MAR brings with it new uncertainty in relation to the operation of share plans.  The main difference under MAR is that there are no "safe harbours" for share plan dealings in the same way as there have been under the Model Code.  Therefore actions that were outside the scope of the Model Code altogether are now in the scope of MAR. MAR is structured so that a dealing is not allowed in a MAR closed period unless the issuer permits such dealing. The circumstances in which an issuer may permit dealing are listed in the regulations but that list is not exhaustive.  It remains to be seen what transactions will be permissible as market practice develops in this area and whether share plan transactions that currently can take place in a prohibited period (under the Model Code) will continue to do so.

As a result of the regulations deriving from Europe, where share plans are not as prevalent nor as regulated as they are in the UK, the wording in MAR that provides examples of the circumstances in which dealing can be permitted do not necessarily fit appropriately with the actions involved for a share option or share award.

In summary, the MAR position is:

  • grants of options/awards of shares will be prohibited in a MAR closed period. Although this is no different to the current regime, MAR does not contain language equivalent to that in the Model Code to deal with actions that can be taken in MAR closed periods. Accordingly, there is no express exemption for grants of options/invitations under the tax advantaged all-employee share plans in the same way as there is under the Model Code.  Care must now be taken by companies operating such plans;
  • MAR sets out certain circumstances in which the issuer may permit options to be exercised during closed periods.  These include the situation where the option would lapse, if not otherwise exercised, during the MAR closed period, provided the option holder has given at least 4 months' notice of the intention to exercise.  We may see the terms of share options now stating that they will be automatically exercised on the day preceding the last date on which they can be exercised;
  • there is no express provision that confirms that the cancellation or surrender of an option is not a "dealing".  Accordingly, the safest view would be that this would be a "dealing"; and
  • MAR contains separate rules restricting what PDMRs can do when they have inside information.


In all likelihood, the rules that allow issuers to permit certain transactions during a MAR closed period will be interpreted to allow much the same actions as currently envisaged by the Model Code. However, this will need to come about through market practice and more guidance, be that from the FCA or ESMA (the European Securities and Markets Authority) or the main industry bodies representing FTSE listed companies and/or AIM companies. We do not expect any substantive guidance to be available before 3 July and we will have to wait some time before there is clarity in this area.

Action points: share plans


  • Review share plans and communications to employees to ensure that any provisions in them that set out when an individual can "deal" in the company's shares do not cut across the provisions of MAR
  • Consider when grants of options/awards will be made in the future
  • Companies will need to think about how any tax that becomes due on the exercise of an option/vesting of an award will be funded (e.g. whether an automatic "sell to pay tax provision" can be operated during a MAR closed period). This may be particularly relevant where shares are "thinly traded"
  • Share dealing codes are likely to evolve to prescribe those share plan related transactions that require clearance. Any industry-led developments should be monitored




Barbara Allen

Barbara Allen

T:  +44 20 7809 2231 M:  +44 7771 531 553 Email Barbara | Vcard Office:  London

Anika Chandra

Anika Chandra
Senior associate

T:  +44 20 7809 2104 M:  +44 7825 848 162 Email Anika | Vcard Office:  London