A recent European Court of Justice decision (Jean-Bernard Lafonta v Autorite des marches financiers [2015] EUECJ C-628/13) has confirmed that “inside information” can be “precise”, for the purposes of the market abuse directive, regardless of whether its potential effect on the price of the relevant security can be predicted.

The question for consideration by the court, centred around a decision by the French Financial Markets Authority to fine Mr Lafonta (the chairman of a company) for failing to make public, information relating to a financial operation which enabled the company to acquire a significant shareholding in a third party group. Mr Lafonta argued that the information was not “precise” because it was not possible to anticipate how the price of the underlying securities would change when the information was made public. The ECJ disagreed with that approach concluding that, “it need not be possible to infer from that information, with a sufficient degree of probability, that, once it is made public, its potential effect on the prices of the financial instruments concerned will be in a particular direction”.

Impact – the decision by the ECJ clarifies that information can be “inside information” if, amongst other things, it is precise and likely to have an effect on the price of securities, regardless of whether the direction of movement in the price is known.

Background – “Inside information” is defined under the market abuse directive as “information of a precise nature which has not been made public” which relates to one or more issuers of financial instruments or to one or more financial instruments and which “if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments”.