Insider Trading Law In Ireland (Part 2)

Author:Mr Keith Smyth
Profession:Dillon Eustace

4. Please explain the prohibitions of insidertradingRegulationsRegulation 5 of the Regulations provides that a person whopossesses inside information (as defined in 3.1 above) shall notuse that information by acquiring or disposing of, or by trying toacquire or dispose of, for the persons own account or for theaccount of a third party, directly or indirectly, financialinstruments (as defined in 2.1 above) to which that informationrelates. The person who possesses the inside information shall not,pursuant to Regulation 5(2), disclose that inside information toany other person unless such disclosure is made in the normalcourse of the exercise of the first mentioned persons employment,profession or duties. That person shall also not recommend orinduce another person, on the basis of inside information, toacquire or dispose of financial instruments to which thatinformation relates.Regulation 5(3) specifies the persons to whom the prohibition oninsider dealing applies. Please see 3.7 above. Pursuant toRegulation 5(5), the prohibition on the use of inside informationdoes not apply to any transaction conducted in the discharge of anobligation to acquire or dispose of any financial instrument whichhas become due and which results from an agreement concluded beforethe person concerned possessed the inside information.If the obligation is conditional on the person not learning ofmajor obstacles to the transaction during due diligence, arguablythe obligation to acquire the financial instruments has not becomedue prior to the receipt of the insider information. There is,however, no guidance on the issue in Ireland.If the pre-existing contractual obligation only enters intoforce from a certain point in time and can be revoked prior to itsentry into force based on a decision made by the relevant party onfoot of inside information which it has received, arguably theobligation to acquire the financial instruments has not become dueprior to the receipt of the insider information. There is howeverno guidance on the issue in Ireland.The prohibition on insider dealing is subject to an exceptionfor actions carried in compliance with the Takeover Rules. See4.2.2. below.Listing RulesRule 6.2.4 of the Listings Rules provides that a listed company,whose securities are admitted on regulated market in Ireland,should consider its obligations under the Regulations and the Rulesin relation to, inter alia, the disclosure of inside information,the maintenance of insider lists and the recording of managertransactions. Rule 6.2.5 of the Listings Rules provides that alisted company, that is not already required to comply with theRegulations, must comply with the Regulations as if it were anissuer for the purposes of the Regulations.Rule 6.2.6 of the Listing Rules provides that no dealings in anysecurities may be effected by or on behalf of a listed company orany member in its group at a time when, under the provisions of theModel Code, a director of the company would be prohibited.Rule 6.2.7 of the Listings Rules provides that a listed companymust require every person discharging managerial responsibilities,including directors, to comply with the Model Code and must takeall proper and reasonable steps to ensure their compliance.Where clearance is given to a person to deal in exceptionalcircumstances (pursuant to paragraph 9 of the Model Code) in aclose period, the notification to a RIS, required by listing rule6.11 and/or Regulation 12 of the Regulations, must include astatement of the exceptional circumstances.Model CodeThe Model Code provides that a restricted person must not dealin any securities of the company without obtaining clearance todeal in advance. "Restricted person" is defined, for thepurposes of the Model Code, as a person discharging managerialresponsibilities who in turn are defined as members of theadministrative, management or supervisory bodies of an issuer or asenior executive who is not a member of such bodies but who hasregular access to inside information relating directly orindirectly to the issuer and has the power to make managerialdecisions affecting the future developments of business prospectsof the issuer.In order to deal, a director (other than the chairman or chiefexecutive) or company secretary must notify the chairman andreceive clearance to deal from him. The chairman must not deal inany securities of the company without first notifying the chiefexecutive (or director designated by the board for this purpose)and receiving clearance to deal from him. Where the chief executiveis not present, the chairman must not deal without first notifyingthe senior independent director or a committee of the board orother officer of the company nominated for that purpose by thechief executive and receiving clearance to deal from that director,committee or officer. The chief executive must not deal in anysecurities of the company without first notifying the chairman (ordirector designated by the board for this purpose) and receivingclearance to deal from him or, if the chairman is not present, asabove, first notifying the senior independent director.A restricted person can not be given clearance to deal in anysecurities of the company during a prohibited period or onconsiderations of a short term nature. An investment with amaturity of one year or less will always be considered to be of ashort term nature pursuant to the Model Code.Prohibited period means for the purposes of the Model Code anyclose period, or, any period where there exists any matter whichconstitutes inside information in relation to the company."Close Period" is defined as a period of 60 daysimmediately preceding a preliminary announcement of the listedcompany's annual results or, if shorter, the period from theend of the relevant financial year up to and including the time ofthe announcement, or, if a preliminary announcement of annualresults is not published, the period of 60 days immediatelypreceding the publication of its annual financial report or ifshorter the period from the end of the relevant financial year upto and including the time of such publication. If the companyreports on a half yearly basis, the close period means the periodfrom the end of the relevant financial period up to and includingthe time of such publication and, if the company reports on aquarterly basis, the close period means the period of 30 daysimmediately preceding the announcement of the quarterly results or,if shorter, the period from the end of the relevant financialperiod up to and including the time of the announcement.A person discharging managerial responsibilities must, pursuantto the Model Code, take reasonable steps to prevent any dealing inthe securities of the company during a close period by:(a) or on behalf of any connected person of his; or(b) an investment manager on his behalf or on behalf of any personconnected with him where either he or the connected person hasfunds under management with that investment fund manager, whetheror not discretionary.A person discharging managerial responsibilities must advise all ofhis connected persons and investment managers acting on his behalfof the name of the listed company in which he is a persondischarging managerial responsibilities and of the close periodsduring which they cannot deal in securities of the company. They inturn must advise him immediately after they have dealt in thesecurities of the company. There are a number of exceptions to thisprohibition on dealing which are dealt with in paragraph 2 of theModel Code.Takeover RulesThe Takeover Rules provide that no person, other than theofferer, who is privy to confidential price – sensitiveinformation concerning an offer or contemplated...

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