Market abuse – the FCA issue a final notice to Tesco

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On 28 March 2017, the Financial Conduct Authority (FCA) announced that Tesco plc and Tesco Stores Limited (Tesco) had agreed that they had committed market abuse in relation to a trading update published on 29 August 2014 which gave a false or misleading impression about the value of publicly traded Tesco shares and bonds.

The trading update in August stated that Tesco expected the trading profit for the first half of the year to be in the region of £1.1 billion. Tesco then published a further trading update on 22 September 2014 in which it announced that it had identified an overstatement of its expected profit for the half year.

The FCA held that as a result of the false or misleading information within the August announcement, the market price for Tesco shares and bonds was inflated. This continued until Tesco issued the corrective statement in September. Purchasers of shares and bonds between these two dates paid a higher price than they would have paid had the false impression not been created.

This is the first time the FCA has used its powers under section 384 of the Financial Services and Markets Act to require a listed company to pay compensation for market abuse. Tesco have agreed to pay compensation to all those investors who purchased Tesco shares and bonds on or after 29 August 2014 and who still held those securities when the statement was corrected on 22 September 2014.

WM comment

As we have commented previously, compliance with MAR is a substantial undertaking both for companies and Nomads/sponsors. It is clear that the FCA intends to enforce its powers under the Financial Services and Markets Act to ensure that market abuse doesn’t occur. The message to take from Tesco’s experience is to make sure that if any corrective statements are required, they are issued as soon as possible to limit the amount of damage that is caused.