Inside Information-Keeping it Inside during COVID-19

AIM Regulation has announced that, until further notice, it will be applying discretion to the application of certain of the AIM Rules for Companies and the AIM Rules for Nominated Advisers. Corporate Partner, Michael Dawes, has provided a useful summary of this which can be found here.

For the purposes of MAR, “inside information” is information of a precise nature, that:

• Has not been made public.
• Relates, directly or indirectly, to one or more issuers or to one or more financial instruments.
• If it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments (that is, it is information that a reasonable investor would be likely to use as part of the basis of their investment decisions).

Note also the provisions as they relate to inside information and MAR in the Financial Conduct Authority’s (FCA) Disclosure and Transparency Rules (DTR) in particular Rule 2.2.

Article 17(1) of MAR provides that an issuer must inform the public as soon as possible of inside information which directly concerns it. This may include market or other conditions external to the issuer which have an effect on it. AIM listed companies will also need to consider the implications of AIM Rule 11, which applies in addition to the obligations under MAR.

DTR 2.28G, requires directors of issuers to carefully and continuously monitor any changes in the company’s circumstances, to determine whether an announcement is required under MAR.

Article 18 of MAR requires issuers to produce and maintain insider lists, and AIM companies are advised to do the same.

An issuer may delay disclosure of inside information where:

• It is faced with an unexpected and significant event, and a short delay is necessary to clarify the situation. In the interim, issuers should consider preparing a holding announcement;
• All three limbs in Article 17(4) of MAR are met ((i) immediate disclosure is likely to prejudice the issuer’s legitimate interests; (ii) delay is not likely to mislead the public; (iii) and the issuer is able to ensure the confidentiality of the information); or
• It is a credit or financial institution and the four conditions in Article 17(5) of MAR are satisfied (being delays to preserve the stability of the financial system).

Where an issuer has delayed disclosure of inside information on the basis set out above, it must notify the FCA that the disclosure of the information was delayed.

Maintaining the confidentiality of commercially sensitive or client information is fundamental to professional advisers and business, as is the proper treatment of inside information, particularly in the current market and business environment.

During the COVID-19 Crisis, many issuers are likely to have periods where they need to carefully consider whether inside information exists due to market, sector, or issuer specific events and  should remind senior management and staff of their obligations, not only as to inside information, but also more generally with regard to commercially sensitive or confidential information. In certain circumstances, the preparation of a leak announcement may be prudent.

DTR 2.6. 1G, requires issuers to have a framework for the control of inside information and establish effective arrangements to deny access to inside information to persons other than those who require it for the exercise of their functions within the issuer.

Whilst most organisations have operated flexible working for years, issuers and advisers are (save for essential financial services), now operating remotely, completely outside a physically controlled office environment, often in accommodation with others who work outside their organisation.

We must be mindful that conversations are more easily overheard, computers and printed material could more easily be seen or accessed by others, and that the frequency and intensity of the working environment is more visible and apparent to those we are living and working with 24 hours a day.

Issuers and their advisers should create an environment of confidentiality within their own home, particularly those in flat share or communal living arrangements with others who are not accustomed to the market concepts of confidential and market sensitive information.

We would encourage all issuers to contact their advisers early, to review and consider their obligations with regard to confidential information, inside information and MAR.