On 24 June 2016 the Institute of Chartered Secretaries and Administrators (ICSA) published a specimen Share Dealing Code that can be adopted by Main Market and AIM companies. The ICSA Code is broadly designed to replace the Model Code on Directors’ Dealings annexed to chapter 9 of the Listing Rules, which will be withdrawn by the FCA when the EU Market Abuse Regulation (MAR) comes into effect on 3 July 2016.
From that date, AIM companies will be required by Rule 21 of the AIM Rules for Companies to have in place a “dealing policy” that includes certain minimum provisions. These include:
- The company’s close periods during which directors and applicable employees cannot deal. As a minimum, the policy must generally prohibit persons discharging managerial responsibilities (PDMRs, who are broadly directors and senior executives, a term that will be new to many AIM companies) from dealing during the closed period of 30 days ahead of the publication of annual and half-yearly financial results. Such a closed period is mandatory under MAR.
- When a PDMR must obtain clearance to deal in the company’s shares, the person(s) who will consider clearance requests and the procedure for obtaining clearance.
Main Market companies
Although Main Market companies will no longer be required to have any share dealing code at all, we expect nearly all will continue to do so.
The ICSA Code is designed to comply with MAR and AIM Rule 21, and is likely to become market standard for both Main Market and AIM companies. However, companies should consider modifying the ICSA Code to suit their own circumstances before adopting it.
Structure of the ICSA Code
The ICSA Code consists of:
- A Group-wide Dealing Policy, which is designed to be circulated to all employees to introduce them to the concepts of inside information and market abuse - which in theory are relevant to all employees, although in practice only directors and certain employees are likely to have access to inside information - and the fact that certain directors and employees are subject to the company’s share dealing code.
- A Share Dealing Code, which is designed to be circulated to all PDMRs and employee insiders.
- A Dealing Procedures Manual, which is designed to be used solely by the Company Secretarial team and (perhaps) by any director who is tasked with deciding whether to give clearance for a dealing and by anyone else in the company who is responsible for the implementation and management of the systems and procedures to restrict dealings by PDMRs and employee insiders.
Summary of the ICSA Code
Who the ICSA Code applies to
- Like the Model Code, the ICSA Code is centred on the need for PDMRs, and all employees who have been told that the Code applies to them (employee insiders), to obtain clearance before carrying out any dealing in the company’s shares, debt instruments or derivatives related to them. “Deal” is very widely defined and captures every, or almost every, type of transaction, including phantom options.
- In most cases, the only employees who will be made subject to the ICSA Code will be those who are included on any permanent insider list that is kept by the company and those who are included on a project insider list. Employees who are included on a project insider list will be subject to the ICSA Code until either they are removed from the project insider list, the project is aborted, or the company announces details of the project to the market. Most projects will last only a few weeks, during which time those employees on the insider list for that project are unlikely to receive clearance to deal. However, employees who are involved with a longer-lasting project, or included on a permanent insider list, may sometimes be given clearance to deal if they do not have any inside information.
Applying for clearance
- Clearance is sought using the application for clearance in Schedule 2 of the Share Dealing Code. The application must specify how many shares are to be bought or sold etc. and give any other relevant information.
- The Company Secretary acts as “gatekeeper” for all clearance applications, and will ensure that all necessary information has been supplied by the PDMR or employee insider before passing the application on to the “Designated Officer” who will consider whether to give clearance. Who the Designated Officer is depends on which individual is applying for clearance. The detail of who is responsible for considering an application for clearance, which was included in the Model Code, is not relevant to employee insiders and has therefore been confined to the Dealing Procedures Manual.
- A person must not apply for clearance while they have inside information.
When clearance will be given
- PDMRs will not normally be given clearance to deal:
- during a closed period ahead of the publication of financial results;
- when the company has inside information (whether or not the PDMR concerned knows of it); or
- (optionally) on considerations of a short term nature.
The closed periods are broadly (a) from the year end until the preliminary results for that year are announced to the market; (b) from the half year end until the results for that half-year are announced to the market; and (c) (optionally) 30 calendar days ahead of the release of each interim management statement (IMS) or quarterly report. These periods will be familiar as they broadly reflect what was in the Model Code. Although companies can choose simply to have a closed period of 30 days ahead of the publication of annual and half-yearly results, which would comply with MAR, we expect few companies to do so. In fact, companies may want to consider modifying the ICSA Code to impose additional, or different, closed periods ahead of financial results and other trading statements.
- Employee insiders will normally be given clearance to deal unless they themselves have inside information (and see the second bullet point above).
- Bulk clearance could be given for certain types of dealings – e.g. those connected with a particular employee share plan – although the company will need to consider carefully whether this will comply with MAR.
Notification obligations when a dealing takes place
- A PDMR who receives clearance and then deals must notify details of the dealing to thecompany within one business day, using the template notification in Schedule 3 of the Share Dealing Code. The deadline of one day is to give the company sufficient time to announce details to the market, which must be done within three business days of the transaction. The PDMR must also notify details of any dealing to the FCA within three business days, using a form prescribed by the FCA. The PDMR can ask the Company Secretary to help with notifying the FCA.
- Employee insiders are not required by the ICSA Code to notify the company when they deal, but the company could choose to require them to do so.
Investment managers and persons closely associated with a PDMR
- PDMRs must provide the company with a list of all their PCAs, and must ask them not to deal:
- during a closed period (which will mean telling them when the company’s closed periods begin and end); and
- (optionally) on considerations of a short term nature.
- PDMRs must also tell their PCAs that they are required to notify the company and the FCA of any dealing, within the same timescales and using the same forms.
- PDMRs must ask their investment managers not to deal during a closed period (which will mean telling them when the company’s closed periods begin and end).
- PCAs are not required by the ICSA Code to seek clearance to deal (either directly or through their PDMR), but companies should consider requiring them to do so.
- Employee insiders are also not required by the ICSA Code to ask their PCAs and investment managers not to deal at certain times (e.g. while the employee is on an insider list): we expect most companies will be happy to leave this provision as it is.
Dealing Procedures Manual
The Dealing Procedures Manual includes more detail on:
- The procedure for considering and refusing or granting clearance.
- The exceptional circumstances when clearance might be given for a dealing during a MAR closed period.
- The exceptional circumstances when clearance might be given for a dealing during an additional, non-MAR closed period.
- Further guidance on dealings related to trading plans, investment programmes (which includes dividend reinvestment plans (DRIPs), acting as a trustee, funds that hold shares in the company and portfolios of assets that include shares in the company.
- Guidance in Schedule 5 on when transactions relating to share plans may be permitted.
- A non-exhaustive list of dealings in Schedule 2.
Modifying the ICSA Code
Companies should consider modifying the ICSA Code to suit their own circumstances. For example:
- Should the company’s Code apply to other employees, such as those with access to inside information either regularly (permanent insiders) or while they are involved with a particular project (project insiders)?
- Should persons subject to the company’s Code be generally prohibited from dealing when the company has inside information, whether or not the person who is proposing to deal happens to know about it?
- Should the company have a closed period ahead of the publication of other financial results or trading statements that it publishes?
- Should persons subject to the company’s Code be generally prohibited from dealing on the basis of short term considerations (i.e. attempting to take advantage of short term movements in the share price)?
- Does the clearance procedure in the ICSA Code, including who is to consider requests for clearance to deal, work with the company’s corporate governance arrangements?
- Should the company require persons who are closely associated with a PDMR, or who act as a PDMR’s investment manager, also to seek clearance before dealing?
- Should the company’s Code be split into two documents – a shorter one for employee insiders and the full document for PDMRs?
How we can help
The ICSA Code is available in pdf format from the ICSA. Please contact us if you would like a copy or if you would like to discuss how the ICSA Code should be modified to produce a Code that suits your company’s circumstances.