Insider Information Exists Independently of the Stock Price Direction

For purposes of determining the existence of insider information subject to obligatory ad hoc announcements, it is irrelevant whether the stock price will rise or fall. The decisive factor is whether the information is considered to be able to influence the stock price.

After the French financial market supervisory authority had imposed a fine against the listed company Wendel SA because of an overdue ad hoc report, the company filed an appeal against the decision. The company argued that it was not possible to predict the direction in which the stock price would head. The Court of Cassation passed the case to the European Court of Justice for decision, since insider law is based on the Market Abuse Directive (“MAD”).

The European Court of Justice (judgment dated 11 March 2015, case no. C-628/13) dismissed this opinion. According to the court, the obligation to publish information solely depends on such information’s potential to influence the stock price. The complex developments in the financial markets make predicting the direction of the stock price impossible. The market’s interest in timely information should take precedence, such that market actors should not be prevented from publishing certain information for fear of a wrong estimation of the direction of the stock price.

The decision is not surprising. The transparency of the capital market is of utmost importance to the European Court of Justice as well as to both European and German legislators. In addition, the law does not indicate that the direction of the stock price is decisive.

Listed companies should always review confidential information with regard to its potential to influence the stock price, and not merely by means of an alignment with the Issuer Guideline (Emittentenleitfaden) of the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - “BaFin”). In the event that insider information subject to an obligatory ad hoc announcement exists, such publication may, under certain prerequisites, be postponed by an exemption resolution of the board of directors. A reason for an exemption within the meaning of section 15 para. 3 of the Securities Trading Act (Wertpapierhandelsgesetz – “WpHG”) may be, for example, that a publication would cause the result or the course of ongoing negotiations to be considerably impaired. Further requirements (e.g., keeping information confidential) must also be satisfied. The exemption resolution must be drafted by the board at the time the ad hoc publication obligation occurs. Therefore, it is recommended that the board of a listed stock corporation (Aktiengesellschaft) always review any possible ad hoc duties at an early stage.