In Market Watch 43, published today, the FSA has expressed concerns about investor relations units providing inside information about ex-dividend dated in response to questions posed by investors or firms in advance of Regulatory Information Service (RIS) announcements.
Although the Market Watch newsletter is primarily being addressed to authorised firms, traders and analysts, issuers should also take note. The FSA believes that some issuers may have given out information about ex-dividend dates without fully considering whether this could be inside information in relation to a related investment and the potential application of the market abuse regime provisions in the Financial Services and Markets Act 2000 (FSMA).
In July 2007, the predecessor of the European Securities and Markets Authority (ESMA) published a non-exhaustive list of the information directly concerning an issuer which might constitute inside information if sufficiently material. That list expressly included ex-dividend date, changes in dividend payment date, amount of the dividend and changes in dividend policy.
In January 2012, ESMA published a set of Q&As on the common operation of the Market Abuse Directive which referred to several episodes of late or incomplete disclosure of the full details of dividend payment announcements that may have caused undue effects on equity derivatives prices. ESMA called on issuers, especially those whose shares are included in reference indices and are the underlying in listed derivatives contracts, to pay special attention and to ensure that their investor relations units take special care when replying to questions posed by investors or firms so as to ensure that only the information that was previously disclosed by the issuer under the MAD obligations is provided in those answers and that selective or unintended disclosures regarding the issuers’ dividend policy are avoided.
Although the FSA did mention the existence of ESMA guidance on the disclosure by issuers of information relating to dividends in its July 2012 Primary Markets Bulletin, and provided a link to the guidance, the bulletin did not expressly draw ESMA’s specific concerns and recommendations to the attention of issuers.
What the FSA has found
Market Watch 43 now confirms that the FSA has identified a number of occasions when derivative traders have traded shortly before Regulated Information Service announcements concerning forthcoming ex-dividend dates of FTSE 100 companies. Initial inquiries suggest that in some cases the Investor Relations Department of the listed company may have agreed to requests made by traders to be informed of the proposed ex-dividend date before the announcement.
The FSA accepts that dividend timing may not be inside information relating to the underlying equity (where that instrument is a qualifying investment admitted to trading on a prescribed market).
However, the FSA’s view (which accords with ESMA’s position) is that the timing of an issue being marked ex-dividend relative to a derivative’s expiry date may in some cases be inside information in relation to single stock and equity index futures and options (where these derivative instruments are investments which are “related investments” in relation to qualifying investments admitted to trading on a prescribed market). Whether the ex-dividend date falls before or after an expiry may be of particular significance to the determination of the derivative’s value.
Issuers should ensure that their investor relations units are carefully briefed about the risks involved in selective or inadvertent disclosure of information in advance of RIS announcements of ex-dividend dates (or changes in dividend payment date, amount of the dividend and changes in dividend policy) and of the need to ensure to ensure that only the information that was previously disclosed by the issuer under the MAD obligations is provided in answers to questions posed by investors or firms.
Authorised firms, traders and analysts are also being reminded to consider the provisions of the market abuse regime in deciding whether to seek information about ex-dividend dates (encouraging another to disclose inside information is also a breach of the market abuse regime) or when in possession of such information.
Firms should also bear in mind their obligations (under SUP 15.10) to report suspicious transactions.