What is a market sounding, and how can inside information be shared lawfully in one?

Before launching a share placing, a bond issue or the sale of a large holding, the seller often wants to test demand. MAR calls this a market sounding: passing information to one or more potential investors, before any announcement, to judge their interest in a possible deal and its conditions, such as its size or price. Since 4 December 2024 the definition refers to a transaction 'if any', making clear that a sounding need not lead to an announced deal. Soundings may be conducted by an issuer; by a secondary offeror whose sale is large enough to be distinct from ordinary trading and relies on first testing investors' interest; by an emission allowance market participant; or by a third party, typically an investment bank, acting for any of them.

A bidder planning a takeover or merger that shares inside information with holders of the target's securities is also conducting a market sounding, but only if both conditions are met: the holders need the information to form a view on whether they would sell, and their willingness to sell is reasonably required for the decision to make the bid or merger. Since 1 January 2021, where a bond offer is addressed only to qualified investors, communications negotiating their participation are not a sounding at all, and the issuer must ensure that the investors acknowledge their legal duties in writing and know the sanctions.

Before any sounding, the disclosing market participant must specifically consider whether it will involve disclosing inside information, write down its conclusion and the reasons, update that record for each disclosure during the sounding, and give it to the regulator on request. This step is mandatory.

The exam material presents consent, warnings and record keeping as steps the discloser must always take before sharing inside information. Since 4 December 2024, when the EU Listing Act amended MAR, they are the conditions of an optional safe harbour. A discloser that opts to meet them is deemed to have disclosed in the normal exercise of its duties, so the disclosure is lawful. It must obtain the recipient's consent to receive inside information. It must warn the recipient not to use the information to trade, or to cancel or amend orders already placed, and to keep it confidential. It must record everything given, the identity of each investor and of the individuals acting for it, and the date and time of each disclosure. It must give those records to the regulator on request. A discloser that does not use the safe harbour is not presumed to have acted unlawfully. It loses the deemed protection, however, so whether the disclosure was lawful is judged under the ordinary test of normal exercise of duties. No sounding needs the regulator's approval in advance.

When information disclosed in a sounding stops being inside information, for example because the deal is abandoned, the discloser must tell the recipients as soon as possible, a step often called cleansing, and keep a record of doing so. Since 4 December 2024 this notice is not needed where the information has otherwise been announced publicly. Recipients must decide for themselves whether they hold inside information, whatever the discloser says; CySEC has adopted ESMA's guidelines for persons receiving soundings. All records under these rules are kept for at least five years. Standard procedures, scripts and record formats are set by Delegated Regulation (EU) 2016/960 and Implementing Regulation (EU) 2016/959.