Considerations for Bond Issuers: Inside Information

The UK Market Abuse Regulation (UK MAR) is designed to ensure a level playing field for investors and reduce the risk of distortion and market abuse.  Those who raise funds through the debt capital markets will be familiar with the UK MAR requirements relating to identification, control and disclosure of inside information.  

The rules are actively monitored and enforced by the Financial Conduct Authority (FCA), who also publishes technical standards and statutory guidance where necessary.  In its recent Primary Market Bulletin 52, the FCA gave some helpful reminders concerning information that is inside information, and how UK MAR might apply in certain scenarios.  

One of the scenarios examined is the resignation of a Chief Executive Officer and appointment of a successor.  The FCA urges issuers to consider their obligations under UK MAR continually throughout the resignation and selection process and on a case-by-case basis. The FCA highlights the general principle that an intermediate step in a protracted process can be inside information if, by itself, it satisfies the relevant criteria.  So the resignation and, separately, the appointment of a successor CEO may constitute inside information at different points in time.  The Bulletin offers some examples of factors that could affect the price sensitivity of this information – such as the market’s expectation of a CEO's retirement (for example based on their length of service), whether a ‘natural’ successor exists, or the reasons behind the CEO’s resignation.  In these circumstances there is usually a need for confidentiality and discretion, particularly in the initial stages of the process, but press speculation and/or leaks can cause a headache for compliance with UK MAR.  So the FCA also points to its own Technical Note 520.2 (delaying disclosure/dealing with leaks and rumours) in relation to any ongoing speculation or leaks. 

The FCA also highlights recent cases where early financial information was made available to the board that indicated the issuer's performance was significantly behind that which had been forecast, and public disclosure of this information was delayed on the basis that over-performance would compensate later in the year.  The FCA reminds issuers of the starting assumption that information relating to financial results could constitute inside information. Delayed disclosure is only permitted in certain limited circumstances, where:

• immediate disclosure is likely to prejudice the issuer's legitimate interests;
• delay of disclosure is not likely to mislead the public; 
• the issuer is able to ensure the confidentiality of the information; and
• the FCA is notified of the delayed disclosure immediately after the information is disclosed.

The FCA reiterates its guidance in Technical Note 521.3 that it is not acceptable to justify non-disclosure of information by offsetting negative and positive news.  

Some useful practical pointers are given in the Bulletin to remind issuers how, in these scenarios and generally, to make sure they are well prepared to correctly identify when information may constitute inside information (and therefore should be publicly disclosed in accordance with UK MAR):

• Establishing a disclosure committee whose role is to determine and advise when information meets the threshold for inside information and determine the timing and content of announcements. This might include having a clear understanding of the definition of inside information, and having access to external legal counsel  at short notice.
• Making sure that the CFO, CEO and Company Secretary can make inside information announcements outside of normal reporting timetables and in the absence of a formal disclosure committee.
• Training relevant employees, including those in the finance function, to enable them to recognise when inside information meets the threshold. 
• Making sure that information classified as inside information is promptly controlled and managed appropriately including the timely creation and updating of insider lists.
• Documenting the reasons information was classified as inside information or, where there was consideration and conclusion that it was not, documenting those reasons.

If you would like training or advice on your legal obligations under UK MAR, please contact Alice Overton, Rachel Orgill-Harris or Julian Barker.