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The meaning of “inside information”

Print publication

05/05/2015

The Market Abuse Directive is designed to combat insider dealing and market manipulation. Central to its operation is the meaning of “inside information”.

Under the Directive, in order to qualify as “inside information”, the information must be “of a precise nature”.

The Court of Justice of the European Union has added some gloss to this definition [1]. The question for consideration by the Court concerned a decision by the French Financial Markets Authority to fine a company chairman for failing to make public information relating to a financial operation which enabled the company to acquire a significant shareholding in a third party. The defendant’s argument was that the information in question was not “precise” as it was not possible to state how the price of the underlying securities would change when the information was made public.

The Court said that information could be “precise” even though it was not possible to determine the directional effect it would have on the securities. In other words, the price might go up or down; it was not a precondition to constituting inside information that it was possible to determine which.

Walker Morris comment
In most cases, it will be possible to tell what the directional effect would be if the information were to be made public so this decision is probably only likely to be relevant in a minority of cases. Even so, it does potentially widen the ambit of the meaning of “inside information”.

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[1] Case C-62/13 Lafonta v Autorité des Marchés Financiers

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