The Draft Press Releases and the Insider Fined €700,000

Inside information is described in the Market Abuse Regulation (MAR) as “information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments.”  

The regulation dictates that “an issuer shall inform the public as soon as possible of inside information which directly concerns that issuer.” In order to do this, the issuer should use “a manner which enables fast access and complete, correct and timely assessment of the information by the public.” An example of this is a press release to industry publications and websites.  

However, in one case in France, the head of consolidation at a business witnessed draft press releases announcing better-than-expected results before they were distributed. Using this information, the person in question was able to make a six-figure profit through insider dealing.  

The resulting sanction from the L'Autorité des marchés financiers (AMF) shows the seriousness with which legislators take market abuse and why issuers must understand and implement proper processes for protecting inside information.  

Background

The company experienced better annual results than expected by financial analysts, as well as improved half-yearly results five months later. On both occasions, the organisation revised and increased its forecasts for the next year. However, the business did not immediately inform the public, making it inside information.   

Before making public the results and forecasts on both occasions, the company drafted press releases, which the head of consolidation received. The investigation by AMF found that they had acquired derivative financial securities of the listed company on both the day they received the information about the annual results and the day after they acquired the half-yearly results.   

On both occasions, they sold the securities the day after purchase and following the release of the news, accruing €342,344 in capital gains. This was the result of an increase in the value of the securities given the results and improved forecasts.   

AMF investigated the matter and found that they knew or should have known that the content of the press releases constituted inside information. However, although the company had made it clear there was a closed period for persons discharging managerial responsibilities (PDMR) trading in the company’s products, the head of consolidation was not featured on an insider list.

Importance of insider lists

Although the business was not sanctioned in this case, companies can endure penalties for failing to maintain insider lists of all people with access to that information. It is essential to document who knew about the inside information and when they accessed the information. Another requirement is for the issuer to make every effort to inform insiders of their responsibilities regarding the avoidance of insider dealing.  

The head of consolidation’s lawyers argued that, without appearing on an insider list, their client was not technically fully knowledgeable about the privileged nature of the information. AMF dismissed this, but it shows how important it is to build and maintain a comprehensive list for every piece of inside information. 
 

Easier insider lists