Protection of the integrity of financial markets and enhancement of investor confidence across Europe are the primary objectives of the EU law regulating insider dealing. In a recent judgment, the European Court of Justice has clarified what ought to be considered as insider dealing in terms of this law.
The facts which gave rise to this judgment were briefly as follows. Spector Photo Group NV, a Belgian company, bought a certain number of its own shares on the stock exchange. It subsequently published certain results and information concerning its commercial policy. The company's share price then increased. The competent national authority considered some of those purchases to be insider dealing and imposed fines of €80,000 on Spector and €20,000 on one of its managers.
The latter sought to annul such a decision before the national courts which in turn turned to the European Court of Justice for an interpretation of the expression "use of inside information" in terms of EU law. In particular, the national court wanted to determine whether it is sufficient, for a transaction to be classified as insider dealing, that a primary insider in possession of inside information trades on the market in financial instruments to which that information relates or whether it is necessary, over and above that, to establish that that person "used" that information with full knowledge.
The European Court of Justice observed that EU law defines insider dealing objectively and the intention behind the dealing is not explicitly taken into consideration. The intention of the insider dealer can be implied from the facts constituting the offence.
This is, however, without prejudice to the rights of the defence to be able to reverse such a presumption.
In defining what actually constitutes insider dealing in terms of EU law, the court emphasised that the salient factor that must be borne in mind at all times is the objective of the law to enhance investor confidence by ensuring that investors will be placed on an equal footing and protected from the unfair use of inside information.
In practical terms, this means that the prohibition on insider dealing applies where a primary insider who is in possession of inside information takes unfair advantage of the benefit gained from that information by entering into a market transaction in accordance with that information.
The court also affirmed that EU law does not require an examination of whether the disclosure actually had a significant effect on the price of the financial instruments to which it relates in order to determine whether information is inside information.
The EU directive dealing with insider dealing has been transposed into Maltese law by the Prevention of Financial Markets Abuse Act which covers instances of market abuse ranging from insider dealing to market manipulation and makes provision for the necessary measures in order to curtail such types of market abuse.
Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is also a visiting lecturer at the University of Malta.
mariosa@vellacardona.com