Insider Trading Law In Ireland (Part 2)

Author:Mr Keith Smyth
Profession:Dillon Eustace
 
FREE EXCERPT
  1. Please explain the prohibitions of insider

    trading

    Regulations

    Regulation 5 of the Regulations provides that a person who

    possesses inside information (as defined in 3.1 above) shall not

    use that information by acquiring or disposing of, or by trying to

    acquire or dispose of, for the persons own account or for the

    account of a third party, directly or indirectly, financial

    instruments (as defined in 2.1 above) to which that information

    relates. The person who possesses the inside information shall not,

    pursuant to Regulation 5(2), disclose that inside information to

    any other person unless such disclosure is made in the normal

    course of the exercise of the first mentioned persons employment,

    profession or duties. That person shall also not recommend or

    induce another person, on the basis of inside information, to

    acquire or dispose of financial instruments to which that

    information relates.

    Regulation 5(3) specifies the persons to whom the prohibition on

    insider dealing applies. Please see 3.7 above. Pursuant to

    Regulation 5(5), the prohibition on the use of inside information

    does not apply to any transaction conducted in the discharge of an

    obligation to acquire or dispose of any financial instrument which

    has become due and which results from an agreement concluded before

    the person concerned possessed the inside information.

    If the obligation is conditional on the person not learning of

    major obstacles to the transaction during due diligence, arguably

    the obligation to acquire the financial instruments has not become

    due 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 into

    force from a certain point in time and can be revoked prior to its

    entry into force based on a decision made by the relevant party on

    foot of inside information which it has received, arguably the

    obligation to acquire the financial instruments has not become due

    prior to the receipt of the insider information. There is however

    no guidance on the issue in Ireland.

    The prohibition on insider dealing is subject to an exception

    for actions carried in compliance with the Takeover Rules. See

    4.2.2. below.

    Listing Rules

    Rule 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 Rules

    in relation to, inter alia, the disclosure of inside information,

    the maintenance of insider lists and the recording of manager

    transactions. Rule 6.2.5 of the Listings Rules provides that a

    listed company, that is not already required to comply with the

    Regulations, must comply with the Regulations as if it were an

    issuer for the purposes of the Regulations.

    Rule 6.2.6 of the Listing Rules provides that no dealings in any

    securities may be effected by or on behalf of a listed company or

    any member in its group at a time when, under the provisions of the

    Model Code, a director of the company would be prohibited.

    Rule 6.2.7 of the Listings Rules provides that a listed company

    must require every person discharging managerial responsibilities,

    including directors, to comply with the Model Code and must take

    all proper and reasonable steps to ensure their compliance.

    Where clearance is given to a person to deal in exceptional

    circumstances (pursuant to paragraph 9 of the Model Code) in a

    close period, the notification to a RIS, required by listing rule

    6.11 and/or Regulation 12 of the Regulations, must include a

    statement of the exceptional circumstances.

    Model Code

    The Model Code provides that a restricted person must not deal

    in any securities of the company without obtaining clearance to

    deal in advance. "Restricted person" is defined, for the

    purposes of the Model Code, as a person discharging managerial

    responsibilities who in turn are defined as members of the

    administrative, management or supervisory bodies of an issuer or a

    senior executive who is not a member of such bodies but who has

    regular access to inside information relating directly or

    indirectly to the issuer and has the power to make managerial

    decisions affecting the future developments of business prospects

    of the issuer.

    In order to deal, a director (other than the chairman or chief

    executive) or company secretary must notify the chairman and

    receive clearance to deal from him. The chairman must not deal in

    any securities of the company without first notifying the chief

    executive (or director designated by the board for this purpose)

    and receiving clearance to deal from him. Where the chief executive

    is not present, the chairman must not deal without first notifying

    the senior independent director or a committee of the board or

    other officer of the company nominated for that purpose by the

    chief executive and receiving clearance to deal from that director,

    committee or officer. The chief executive must not deal in any

    securities of the company without first notifying the chairman (or

    director designated by the board for this purpose) and receiving

    clearance to deal from him or, if the chairman is not present, as

    above, first notifying the senior independent director.

    A restricted person can not be given clearance to deal in any

    securities of the company during a prohibited period or on

    considerations of a short term nature. An investment with a

    maturity of one year or less will always be considered to be of a

    short term nature pursuant to the Model Code.

    Prohibited period means for the purposes of the Model Code any

    close period, or, any period where there exists any matter which

    constitutes inside information in relation to the company.

    "Close Period" is defined as a period of 60 days

    immediately preceding a preliminary announcement of the listed

    company's annual results or, if shorter, the period from the

    end of the relevant financial year up to and including the time of

    the announcement, or, if a preliminary announcement of annual

    results is not published, the period of 60 days immediately

    preceding the publication of its annual financial report or if

    shorter the period from the end of the relevant financial year up

    to and including the time of such publication. If the company

    reports on a half yearly basis, the close period means the period

    from the end of the relevant financial period up to and including

    the time of such publication and, if the company reports on a

    quarterly basis, the close period means the period of 30 days

    immediately preceding the announcement of the quarterly results or,

    if shorter, the period from the end of the relevant financial

    period up to and including the time of the announcement.

    A person discharging managerial responsibilities must, pursuant

    to the Model Code, take reasonable steps to prevent any dealing in

    the 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 person

    connected with him where either he or the connected person has

    funds under management with that investment fund manager, whether

    or not discretionary.

    A person discharging managerial responsibilities must advise all of

    his connected persons and investment managers acting on his behalf

    of the name of the listed company in which he is a person

    discharging managerial responsibilities and of the close periods

    during which they cannot deal in securities of the company. They in

    turn must advise him immediately after they have dealt in the

    securities of the company. There are a number of exceptions to this

    prohibition on dealing which are dealt with in paragraph 2 of the

    Model Code.

    Takeover Rules

    The Takeover Rules provide that no person, other than the

    offerer, who is privy to confidential price – sensitive

    information concerning an offer or contemplated offer, shall deal

    in relevant securities of the offeree during the period from the

    time at which such person first has reason to suppose that an

    offer, or an approach to the view to an offer being made, is

    contemplated to the time of the announcement of the offer or

    approach or the termination of discussions, whichever is the

    earlier.

    The Takeover Rules further provide that no person who is privy

    to such information shall make any recommendations during the

    relevant period to any other person as to the dealings of any kind

    in relevant securities of the offeree. The notes on the Takeover

    Rules state that notwithstanding the provisions of Rule 4, a person

    may be precluded from dealing or communicating price-sensitive

    information to others by virtue of the restrictions in the

    Companies Act, 1990 or by virtue of the Regulations and state that

    if the Takeover Panel become aware of incidences to which such

    restrictions may be relevant, it may inform the Stock Exchange

    and/or other authorities.

    Companies Acts

    Part V of the Companies Act, 1990 provides that a person who is,

    or at any time in the previous 6 months has been, connected with a

    company is prohibited from dealing in any securities of that

    company if, because of his position, he has information that is not

    generally available – but, if it were, would be likely to

    materially affect the price of those securities.

    Furthermore, where a person connected with one particular

    company obtains inside information about another company,

    particularly where some business relationship or transaction is

    involved or contemplated between the two, it is unlawful for a

    person in the first company to...

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