In May 2008, the Financial Services Authority (the FSA) found Woolworths Group plc to be in breach of its obligations under the Disclosure Rules and to have allowed a false market to exist in its shares. Woolworths was fined £350,000 - the first ever fine issued for a breach of the Disclosure Rules.

The fine was issued by the FSA in connection with an agreement entered into in August 2004 between Woolworths and Tesco for the supply of entertainment products. The agreement was amended in December 2005, causing a loss of profits for Woolworths estimated at £8million (in excess of 10%of anticipated profits for its next financial year). Woolworths did not announce the variation of the agreement to themarket until themiddle of January 2006, when itmade it public as part of a scheduled Christmas trading update. Following the announcement, Woolworths’ share price fell some 12%.

The FSA concluded that the amendment of the agreement was ‘inside information’ and that Woolworths’ failure to announce it promptly was in breach of Disclosure Rule 2.2.1 (which requires an issuer to notify themarket of inside information as soon as possible). The FSA also found that the delay in announcing the variation led to the creation of a false market in Woolworths’ shares for 29 days, thereby breaching Listing Principle 4.

In order to constitute inside information, the relevant informationmust amongst other things, ifmade generally available, be likely to have a significant effect on the share price. Whilst  Woolworths attributed the 12%decline in its share price to a number of factors (including the varied agreement). The FSA rejected this argument and linked the drop in share price directly to Woolworths’ failure to announce the variation.

With the help of their financial and legal advisers, retail companies need to assess whether or not they are in possession of inside information so as to ensure that they do not inadvertently breach their disclosure obligations or create or allow to continue a false market in their shares. One of the key factors highlighted by the FSA was Woolworths’ failure to take professional advice on its disclosure obligations and on whether the variation might have amounted to inside information.