The Central Bank of Ireland has issued a Consultation Paper (CP58) proposing that new rules concerning the handling of inside information be included in its Market Abuse Rules.  The Consultation Paper’s main themes have emerged as the result of an inspection programme carried out by the Central Bank, aimed at examining how a sample of companies who are subject to the Market Abuse Regulations ( “Issuer(s)”) handled and managed information which may be price sensitive.
The Central Bank’s proposals are grouped under three headings, as follows:

Determining when Inside Information Exists
Under the Market Abuse Regulations, the responsibility to deem information as inside information rests primarily with the Issuer.  Once information is deemed by the Issuer to be inside information, the Market Abuse Regulations require the Issuer to disclose publicly (without delay) the pertinent inside information (unless it can avail of the partial exemption from disclosure contained in the Regulations which is based around preserving the Issuer’s legitimate interests).

The Central Bank is proposing the following new rules concerning the determination of when information is deemed to be inside information:

• Each and every Issuer must formally constitute a committee to convene (as required) and to conduct the process that arises as a result of information being considered inside information, reporting to the Board of Directors of the Issuer, as and when deemed appropriate by the Board
• There should be written policies and procedures prepared and adopted by this committee
• A formal written record should be kept of the deliberations and discussions which take place at meetings of this committee

In addition, the Central Bank is proposing that the new rules will recommend that a contemporaneous chronology of events is the best mechanism for achieving the above objectives.

Types of Insider List
The Market Abuse Regulations require Issuers (and other specifically identified parties) to maintain lists of the identity of insiders who have access to inside information.  It seems from the inspection programme conducted by the Central Bank that certain Issuers maintain “permanent” insider lists while others maintain “event-based” and combined (both permanent and event-based) insider lists. Permanent insider lists are maintained on the assumption that there are certain persons with an Issuer who, based on their role within the Issuer, are always in possession of inside information. Event-based insider lists are maintained on the basis that persons are added to the list if and when they come into possession of inside information. The Central Bank is proposing a new rule in the Market Abuse Rules to the effect that it is the considered view of the Central Bank that event-based lists are the most appropriate form of insider list to meet the requirement under the Market Abuse Regulations to maintain insider lists.  In addition, the Central Bank is proposing including a requirement that where the Central Bank requests sight of an Issuer’s insider list it will be accompanied by a detailed chronology of events which is to be read in conjunction with the list.  Furthermore, the Central Bank is proposing including a new rule to the effect that should an Issuer claim that due to the nature of its business a permanent list is the most appropriate means for it to comply with the requirement to maintain an insider list, it will need to provide reasoning to the Central Bank, explaining why the maintenance of a permanent list is the most appropriate mechanism for it to satisfy this requirement.

Director and Senior Management Dealing
The Market Abuse Regulations require persons discharging managerial responsibility and, in certain circumstances, persons closely associated with them to notify the Central Bank of transactions conducted on their own account relating to shares of the Issuer, or to derivatives or other financial instruments linked to them.  Following its inspection programme, the Central Bank is proposing:

• That each Issuer has a documented policy and procedure on director, senior management and employee dealing
• It shall be sufficient for an Issuer to include rules on staff dealing in its Employee Code of Conduct (recognising that most employees are rarely in possession of inside information) but that an alert procedure should also be included which would apply where an employee becomes aware of inside information.

The Central Bank has set a deadline of 14 June 2012 for comments on the Consultation Paper.

About the Market Abuse Regulations and the Market Abuse Rules
The Market Abuse Regulations implement the Market Abuse Directive and are concerned with the prevention, detection and investigation of market abuse in relation to financial instrument traded on a regulated market in at least one EU Member State.

The Market Abuse Rules are a set of rules issued by the Central Bank under the Investment Funds, Companies and Miscellaneous Provisions Act 2005 that supplement, and provide guidance on the steps that may be taken to comply with, the Market Abuse Regulations.

Contributed by Mark Talbot