ARTICLE
29 November 2024

Considerations For Bond Issuers: Inside Information

D
Devonshires

Contributor

Based in the City of London for over 150 years, Devonshires is a leading practice providing high-quality, accessible and value-for-money services to domestic and international clients, including developers, local authorities, housing associations and financial services firms. The practice focuses on building strong, long-lasting relationships in order to achieve outstanding results based on practical advice. The foundation of its success is its commitment to people, both its own and those working for its clients. The firm ensures its staff have access to high-quality training and fosters ‘one to one’ connections between its solicitors and clients.

The firm acts on a broad range of matters including projects, property and real estate, securitisation, construction, housing management, commercial litigation, employment, banking, corporate work, and governance. The practice is a leader in social housing, including working on many development projects nationwide and helping to draft legislation.

The UK Market Abuse Regulation (UK MAR) ensures market fairness by regulating inside information and its disclosure. The FCA's Primary Market Bulletin 52 provides guidance on handling sensitive information, such as CEO resignations, delayed financial disclosures, and managing leaks. Key recommendations include establishing a disclosure committee, training employees, and ensuring proper management of inside information. The FCA emphasizes timely and appropriate disclosure...
United Kingdom Finance and Banking

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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