Share Dealings Notes

SHARE DEALINGS

Strategy by the FCA to protect the market’s reputation:

1. Control of share dealings by PDMRs [Model Code, DTR 3]

2. Criminal offences for insider dealing [individuals] and civil offences of market abuse [individuals and companies]

3. Control and disclosure requirements of inside information under DTR 2 by listed companies

4. Disclosure requirements of share dealing by shareholders [DTR 5.1.2R] and listed companies [DTR 5.812R]

1. Control of share dealings by PDMRs

• LR 9.2.8R: A listed company must require every PDMR, including directors, to comply with the Model Code and to take all proper and reasonable steps to secure their compliance.

  • If the company is in breach of this provision, FCA can take disciplinary action and impose sanctions under s.91 FSMA.

• s.96B FSMA: Definition of PDMR

  • LR 9.2.8AG provides further guidance on this definition: not necessarily restricted just to persons with direct employment or a director’s service contract

  • s.96B(2) and Schedule 11B FSMA: Connected persons of PDMRs

• The Model Code controls dealings by restricted persons (para 1(f) – PDMRs) in the securities of a listed company.

  • Restricted persons must obtain clearance from the chairman before dealing (para 3 and 4)

  • Clearance must not be given during a prohibited period (para 1(e) – a close period (para 1(a) or when there exists a matter constituting insider information) or where dealing is based on considerations of a short term nature (para 3 and 8)

  • PDMRs must seek to prohibit dealings by their connected persons in a close period (para 21) and take reasonable steps to prevent their connected persons from dealing on considerations of a short term nature

• There are exceptional circumstances in which clearance may be given in a prohibited period for a restricted person to sell securities (para 9 and 10) – however, they will not apply where the restricted person holds inside information [as opposed to the definition of a close period, which is where there exists any matter that constitutes inside information].

• Even if a person is given clearance to deal, the restricted person must still check that they are not committing an insider dealing or market abuse offence (see part 2 below).

• Procedure:

  • Response to request for clearance to deal must be given within five business days of the request

  • Company must maintain a record of the response to any dealing request made by a restricted person and of any clearance given

  • Restricted person who is given clearance to deal must deal as soon as possible and in any event within two business days of clearance being received

  • Restricted person must notify the company in writing of the dealing within four business days (DTR 3.1.2R)

  • The issuer must then notify an RIS of the dealing by no later than the end of the business day following the receipt of the information by the company (DTR 3.1.4R).

  • The notification must also include a statement of the nature of the exceptional circumstances under which clearance was given, if any (LR 9.2.10R).

2. Criminal offences for insider dealing and civil offences of market abuse

Make sure to go through the checklist for each potential offence.

Insider dealing

• Individual? (s.52(1) CJA)

• Deals/encourages/discloses? (s.52(1), (2)(a), (2)(b))

• Insider? (s.57(1))

  • Inside information from an inside source

• Inside information? (s.56(1) – similar to s.118C FSMA)

  • Relates to particular securities or to ap articular issuer

  • Is specific or precise

  • Has not been made public

  • If made public, would be likely to have a significant effect on the price of any securities

• Inside source? (s.57(2))

  • Director, employee, shareholder of issuer

  • Through employment, office or profession

  • Indirect source

• Defences? (s.53 – depending on the particular offence)

• Penalties? (s.61)

  • Criminal offence: fine and/or prison

  • Standard of proof: beyond reasonable doubt

• Within territorial scope? (s.62)

  • Not guilty of dealing unless within the UK at the time of dealing; market is a UK regulated market [includes both Main Market and AIM]; or professional intermediary was within the UK at the time of the alleged offence

  • Not guilty of encouraging or disclosing unless within the UK at the time alleged to have disclosed/encouraged; or the recipient of the information or encouragement was within the UK when he received the information/encouragement.

Market abuse

• ‘Person’ (includes companies!); ‘qualifying investment’; prescribed market (s.118(1))?

  • Both Main Market and AIM are prescribed markets

• Behaviour: Falls within any one or more of the types of behavior set out in ss.118(2)-(8) (s.118(1)(b))?

  • Unitalicised offences are MAD offences; italicized offences are UK offences. Must start with MAD offences; would only use UK offences if MAD offences do not stick! The UK offences are designed to catch what is not caught by s.118(3) & (3).

• Possible offences:

  • Dealing - s.118(2) – Insider dealing

  • Discloses - s.118(3) – Improper disclosure

  • Encourages - s.123(1)(b) – Secondary offence of requiring or encouraging another to engage in market abuse

For both s.118(2) and s.118(3), the person must be an insider and have inside information.

• Insider? (s.118B(c))

  • Member of an administrative, management or supervisory body of the issuer

  • Has access to information during the exercise of employment or duties [e.g. a solicitor]

  • Obtained by other means and which he knows, or could reasonably be expected to know, is inside information

• Inside information? (s.118C(2))

  • Precise nature

  • Not generally available

  • Relates directly or indirectly to one or more issuers of the qualifying investments

  • Would, if generally available, be likely to have a significant effect on the price of the qualifying investments (David Massey v FSA – ‘reasonable investor’ test for deciding whether info is likely to have a significant effect on price)

• Defences? (s.123(2))

  • Reasonable grounds for FCA to be satisfied that a defence has been established, i.e. that the...

Buy the full version of these notes or essay plans and more in our Equity Finance Notes.