This Q&A will be a relief to the UK market and confirms the approach of the FCA set out in their statement published on 25 May 2016, where an issuer announces preliminary results, the closed period is immediately before the preliminary results announcement provided the preliminary announcement contains all inside information expected to be included in the year-end report.
Final Report on Guidelines on market soundings and delay of disclosure of inside information
ESMA issued a consultation paper on its proposed draft Guidelines on 28 January 2016, with responses required by 31 March 2016. Despite some scepticism, ESMA has fulfilled its goal in the January CP of “publishing a final report by early Q3 2016, around the entry into application of MAR”. However, the Guidelines will not apply until 2 months after publication of translations into the 23 other national languages of the European Union. National Competent Authorities have to confirm to ESMA within 2 months of the publication of the Guidelines whether they will comply or intend to comply with the Guidelines and give reasons for any non-compliance.
It remains to be seen what action the FCA will take in relation to delayed disclosure. In their MAR implementation Policy Statement PS16/13, the FCA said that they would reassess the status and continuance of DTR2.5 “once we have more certainty on the content of the ESMA Guidelines”. They also noted that DTR2.5.5G (on “impending developments”) will need to be amended once the ESMA Guidelines are available.
While ESMA has made a number of amendments to its draft Guidelines in respect of Market Sounding Recipients (MSRs) in the interests of proportionality, there will be some disappointment that there are few substantial changes to the draft Guidelines on delayed disclosure and what amounts to prejudice to the legitimate interests of an issuer that may entitle it to delay disclosure of inside information. ESMA now gives examples of the type of negotiations whose outcome would “likely be jeopardised by immediate public disclosure”, the examples being negotiations related to “mergers, acquisitions, splits and spin-offs, purchases or disposals of major assets or branches of corporate activity, restructurings and reorganisations”. However, ESMA has retained its approach that “impending developments” is too generic to be included in the list of legitimate interests.
ESMA also makes it clear that in all cases the examples provided are indicative and there may be other cases of legitimate interest than the ones included in the Guidelines, while emphasising that it is for issuers to explain that they are in a case where their legitimate interests are likely to be prejudiced by immediate disclosure of inside information and that each situation, including those listed in the Guidelines, should be assessed on a case by case basis. ESMA specifically rejects the view that a CEO’s resignation could be an example of legitimate interest to delay the disclosure until a successor has been appointed (even if the successor’s appointment is imminent) and states that the resignation should be disclosed as soon as possible.
ESMA has not provided further clarity on the question of when accounting information received from a subsidiary in connection with the preparation of accounts is inside information.
The three circumstances in which ESMA’s Guidelines state that delay in disclosure is likely to mislead the public have not materially changed save that the third (where the inside information is in contrast with the market’s expectations) “where such expectations are based on signals that the issuer has previously sent to the market” has been clarified to include “interviews, roadshows or any other type of communication organised by the issuer or with its approval”.
The FCA’s response to the Guidelines is awaited with interest.