Europe: Court of Justice judgment - the precise nature of inside information

The Court of Justice of the European Union gave its judgment today in Markus Geltl v Daimler AG (Case C-19/11) and considered the requirement for inside information to be precise in nature for the purposes of EU law on market abuse and insider dealing (Directives 2003/6/EC and 2003/124/EC). Article 1(1) of Directive 2003/124/EC provides that information will be of a precise nature "if it indicates a set of circumstances which exists or may reasonably be expected to come into existence or an event which has occurred or may reasonably be expected to do so and if it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of financial instruments or related derivative financial instruments".

The facts giving rise to the court's judgment were as follows. On 28 July 2005, Daimler's supervisory board decided (and disclosed) that the chairman of its management board would be standing down earlier than expected. The company's share price rose as a result of this announcement. The chairman's intention to leave had been discussed earlier, on 17 May 2005, with members of the supervisory board.  In proceedings before Germany's Federal Court of Justice, a former Daimler shareholder sought compensation for the loss he suffered in respect of the allegedly late disclosure by Daimler of the chairman's early departure. A reference was made to the Court of Justice, which was asked if information precise in nature could exist before the supervisory board's decision on 28 July.

The court held that it could and stated that Article 1(1) must be interpreted as meaning:

• "... in the case of a protracted process intended to bring about a particular circumstance or to generate a particular event, not only may that future circumstance or future event be regarded as precise information within the meaning of those provisions, but also the intermediate steps of that process which are connected with bringing about that future circumstance or event" (para. 40).

• "...the notion of ‘a set of circumstances which exists or may reasonably be expected to come into existence or an event which has occurred or may reasonably be expected to do so’ refers to future circumstances or events from which it appears, on the basis of an overall assessment of the factors existing at the relevant time, that there is a realistic prospect that they will come into existence or occur. However, that notion should not be interpreted as meaning that the magnitude of the effect of that set of circumstances or that event on the prices of the financial instruments concerned must be taken into consideration". (para. 56).

A copy of the court's summary of its judgment is available here (pdf).