Court clarifies concept of ‘information of a precise nature’
By Manon Malhère | Thursday 28 June 2012
A step preceding disclosure of a decision by a listed company may constitute ‘information of a precise nature’ that must be disclosed to financial markets, the EU Court of Justice ruled, on 28 June (Case C-19/11). Its judgement came in response to a reference for a preliminary ruling by the German Federal Court (Bundesgerichtshof) on the interpretation of two directives.
Directive 2003/6 on insider trading and market manipulation obliges issuers of financial instruments to disclose, as soon as possible, inside information which is of direct concern to them. ‘Inside information’ is defined as information which is “of a precise nature,” has not been made public, relates to financial instruments or their issuers and would be likely to have a significant impact on the prices of those financial instruments. Directive 2003/124 specifies that information of a precise nature must refer to a set of circumstances which exists or “may reasonably be expected” to come into existence.
The case began on 28 July 2005, when the German automotive giant Daimler AG disclosed a decision relating to the early departure of its Chairman, Jürgen E. Schrempp. Following that decision, the firm’s share price rose sharply on financial markets. Margus Geltl, an investor who had sold his share before the decision was made public, took legal action. He claimed that he had sustained a loss due to the delayed disclosure of the decision. More than two months went by between Schrempp’s decision to leave the company and announcement of the decision.
The German court hearing the case asked the EU Court of Justice whether the steps preceding the decision may constitute ‘information of a precise nature’ within the meaning of the two directives.
The court found that for a protracted process intended to bring about a particular circumstance or generate a particular event (in this case, Schrempp’s decision to resign), not only the event or circumstance, but also “the intermediate steps of that process” may be regarded as ‘precise information’.
The EU judges also clarified the provision establishing that information regarded as precise must refer to a set of circumstances or an event that “may reasonably be expected” to come into existence. These are “future circumstances or events from which it appears, on the basis of an overall assessment of the factors existing at the relevant time, that there is a realistic prospect that they will come into existence or occur”. The magniture of their potential impact on the prices of the financial instruments concerned is immaterial, ruled the court.
The judges also clarified the provision establishing that information regarded as precise must refer to a set of circumstances or an event that “may reasonably be expected” to come into existence.