On 11 March, the Court of Justice of the EU (CJEU) gave a preliminary ruling on the meaning of information of a "precise nature" in the context of two Directives, namely Directive 2003/6/EC on insider dealing and market manipulation, and Directive 2003/124/EC on the definition and public disclosure of inside information and the definition of market manipulation.
The CJEU held that in order to prevent insider dealing, information must be made public even if the holder of the information does not know how precisely it will influence the price of financial instruments. Otherwise, the CJEU said, the holder of information could cite uncertainty as a pretext for not making the information public, in order to profit from it, to the detriment of the others in the market.
Directive 2003/6/EC prohibits insider dealing and it defines "inside information" as "information of a precise nature which has not been made public, relating directly or indirectly 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". The Directive goes on to provide that Member States must ensure that issuers of financial instruments inform the public as soon as possible of inside information which directly concerns them.
In this case, the Court of Appeal in Paris referred the following question to the CJEU for a preliminary ruling:
"Must point (1) of Article 1 of Directive 2003/6 and Article 1 (1) of Directive 2003/124 be interpreted as meaning that only information in respect of which it may be determined, with a sufficient degree of probability, that once it is made public, its potential effect of the prices of the financial instruments concerned will be in a particular direction, may constitute inside information?"
The facts of the case concerned a French investment company, Wendell, which acquired a significant shareholding in Saint-Gobain, a company which manufactured construction material. The French Financial Markets Authority, the AMF, accused Wendell and the chairman of its board of directors, Mr. Lafonta, of failing (a) to make public the principal characteristics of the financial operation; (b) to make that information public by a given date in 2007 and; (c) to make public the inside information as to Wendell's implementation of that financial operation for the purposes of acquiring a substantial shareholding in Saint-Gobain's capital.
Mr Lafonta claimed that there was no need to make public the information on the financial operation because that information was not precise enough to support an inference as to whether its possible effect would be a rise or fall in the price of Wendel's shares.
The CJEU's response to the question for preliminary ruling was as follows:
- In order to prevent insider dealing, information must be made public even if the holder of the information does not know how precisely it will influence the price of financial instruments;
- Otherwise the holder of information could cite uncertainty as a pretext for not making the information public, in order to profit from it, to the detriment of the others in the market; and
- The only information that may be regarded as imprecise is information that is vague or general, from which it is impossible to draw a conclusion as regards its possible effect on the prices of the financial instruments concerned.