On November 20, 2015 the Financial Conduct Authority (FCA) published a consultation paper seeking views on its proposals to amend the guidance in DTR 2.5.5G on when an issuer can legitimately delay disclosure of inside information. This follows a review by the FCA of its rules and guidance about delaying disclosure of inside information in the Disclosure and Transparency Rules (DTRs) following the Upper Tribunal decision in Ian Hannam v FCA in 2014.
The FCA notes in the consultation paper that it is in the interests of both issuers and investors to have a clear understanding of the basis for classifying information as inside information so that they can properly understand their obligations. The consultation paper looks at the test of what “inside information” is within section 118C Financial Services and Markets Act 2000. It considers the link with “significant effect on price” and the meaning of “precise” information. It then considers the ability for issuers to delay disclosing inside information to protect their legitimate interest, for example, while negotiating a transaction. DTR 2.5.5G currently contains further UK specific guidance which states that “other than in relation to impending developments or matters described in DTR 2.5.3R or DTR 2.5.5AR, there are unlikely to be other circumstances where delay would be justified”. The FCA has been told that a combination of factors is causing practical difficulties for issuers in deciding what should be disclosed and there is concern that these factors could begin to force issuers into disclosure of information at a stage where it is still significantly unformed and would be of little benefit to the market.
The FCA states that its aim is to ensure the maintenance of a regime which produces transparency which is useful to investors. As a result it has been considering whether to leave the rules unchanged or make changes to the rules now. The FCA has decided that it is not appropriate to issue further guidance in relation to legitimate interest or the DTR provisions to delay disclosure or generally but has decided to propose amending the guidance to remove the last sentence of DTR 2.5.5G which will clarify, for the avoidance of doubt, that issuers may have a legitimate reason to delay disclosure in circumstances other than the non-exhaustive examples listed in DTR 2.5.3R or the circumstances described in DTR 2.5.5AR. The FCA does not believe that this proposed change will have a negative impact on the type of transparency it expects the regime to produce, or on the quality or amount of disclosures, but that it will align the rules more closely with the Market Abuse Directive and the Market Abuse Regulation’s policy intent. It will also provide clarity that an issuer can have a legitimate interest in delaying disclosure in other situations than the non-exhaustive circumstances the rules currently set out.
In the consultation paper, the FCA notes that ESMA is to issue guidelines which will create a non-exhaustive indicative list of issuers’ legitimate interests as required by Article 17(11) of the Market Abuse Regulation. The FCA will look at this when it is available. It also makes the following points:
- In deciding if there is a legitimate interest, and if an issuer can therefore consider delaying disclosure of inside information under the DTRs, the issuer must be clear that publishing the inside information would actually prejudice its interest. An example of where this would not be the case and where it would not be appropriate to delay disclosure would be if an issuer has a commercial or PR-related preference to delay disclosure, but public disclosure would not actually damage its interests;
- Delaying disclosure to protect the price of the relevant security does not fall within the meaning of a legitimate interest as an issuer does not gain any direct benefit from its security price staying at a specific level. As a result, it is unlikely an issuer trying to delay disclosure of inside information for this reason could demonstrate that the delay would not have a misleading effect.
Comments on the consultation paper are requested by February 20, 2016.
(FCA, Provisions to delay disclosure of inside information within the FCA’s Disclosure and Transparency Rules, 20.11.15)