Thursday, 12 March 2015

Europe: insider dealing - the meaning of the 'precise nature' of information

The Court of Justice of the European Union gave its opinion yesterday in Jean-Bernard Lafonta v Autorité des marchés financiers (Case C-628/13). The court considered the meaning of information of a 'precise nature' in the context of Directives 2003/6/EC and 2003/124/EC on insider dealing and market abuse. It rejected the argument advanced by Mr Lafonta that information could not be regarded as precise unless it enabled the holder of the information to anticipate the direction of change in the price. The court noted:
A particular item of information can be used by a reasonable investor as one of the grounds for his investment decision and, accordingly, satisfy the condition laid down in Article 1(2) of that directive [Directive 2003/124/EC], even though it does not make it possible to determine the movement in a given direction of the prices of the financial instruments concerned.

... The increased complexity of the financial markets makes it particularly difficult to evaluate accurately the direction of a change in the prices of those instruments, as was stated in recital 1 to Directive 2003/124, which refers to several factors likely to affect those prices in a given situation. In those circumstances — which can lead to widely differing assessments, depending on the investor — if it were accepted that information is to be regarded as precise only if it makes it possible to anticipate the direction of a change in the prices of the instruments concerned, it would follow that the holder of that information could use an uncertainty in that regard as a pretext for refraining from making certain information public and thus profit from that information to the detriment of the other actors on the market.". 

A summary of the court's opinion is available here (pdf).

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