News

Preventing Insider Offences in light of the COVID-19 Pandemic

The Malta Financial Services Authority (MFSA) regulates listed entities whose financial instruments are admitted to a public trading venue.

Definition of Inside Information

In a recent circular, the MFSA has advised that any knowledge of a significant impact on an issuer, its performance or its prospects due to the COVID-19 pandemic should be promptly disclosed if it qualifies as inside information. In terms of article 7 of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (MAR) inside information shall comprise the following types of information:

(a) information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers 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;

(b) in relation to commodity derivatives, information of a precise nature, which has not been made public, relating, directly or indirectly to one or more such derivatives or relating directly to the related spot commodity contract, and which, if it were made public, would be likely to have a significant effect on the prices of such derivatives or related spot commodity contracts, and where this is information which is reasonably expected to be disclosed or is required to be disclosed in accordance with legal or regulatory provisions at the Union or national level, market rules, contract, practice or custom, on the relevant commodity derivatives markets or spot markets;

(c) in relation to emission allowances or auctioned products based thereon, information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more such instruments, and which, if it were made public, would be likely to have a significant effect on the prices of such instruments or on the prices of related derivative financial instruments;

(d) for persons charged with the execution of orders concerning financial instruments, it also means information conveyed by a client and relating to the client’s pending orders in financial instruments, which is of a precise nature, relating, directly or indirectly, to one or more issuers 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, the price of related spot commodity contracts, or on the price of related derivative financial instruments.

Publication of inside information should be made as soon as possible, in an accurate, precise and sincere manner which ensures full and effective distribution allowing investors to have equal access to the information.

List of Insiders

It is to be noted that in the eventuality that listed entities have designated specific individuals to monitor the issuer’s exposure to the COVID-19 risk, such individuals, unless already included in the issuer’s permanent letter of intent (“LOI”), should be included on a temporary LOI, once the effects of the pandemic on the company’s business, its prospects and/or the measures taken by the company with respect to COVID-19, are considered to amount to inside information. Any individuals included in the list of insiders would be considered to be in possession of inside information. It is thus crucial that issuers keep their list of insiders up to date.

Closed Periods

In terms of Article 19(11) of MAR, a person discharging managerial responsibilities within an issuer shall not conduct any transactions on its own account or for the account of a third party, directly or indirectly, relating to the shares or debt instruments of the issuer or to derivatives or other financial instruments linked to them during a closed period of 30 calendar days before the announcement of an interim financial report or a year-end report.

The term announcement of an interim or a year-end financial report used in the MAR is the public statement whereby the issuer announces the information included in an interim or a year-end financial report that the issuer is obliged to make public.

With particular reference to the year-end financial report, the announcement is the public statement whereby the issuer announces, in advance to the publication of the final year-end report, the preliminary financial results agreed by the management body of the issuer and that will be included in that report. This can apply only if the disclosed preliminary financial results contain all the key information relating to the financial figures expected to be included in the year-end report. In the event the information announced in such way changes after its publication, this will not trigger another closed period but should be addressed in accordance with Article 17 of MAR.

This article was written by Dr Cherise Abela Grech and Dr Luke Mizzi

For more information on Financial Markets Regulation please contact Dr Ian Gauci on igauci@gtgadvocates.com, Dr Cherise Abela Grech on cabelagrech@gtgadvocates.com, and Dr Luke Mizzi on lmizzi@gtgadvocates.com

Disclaimer: This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.