Investment Management Alert
June 2008
Authors:
Philip J. Morgan
+44.20.7360.8123
philip.morgan@klgates.com
Neil Robson
+44.20.7360.8130
neil.robson@klgates.com
K&L Gates comprises approximately 1,500
lawyers in 25 offices located in North
America, Europe and Asia, and represents
capital markets participants, entrepreneurs,
growth and middle market companies,
leading FORTUNE 100 and FTSE 100
global corporations and public sector
entities. For more information, visit www.
klgates.com.
www.klgates.com
Unpublished Price Sensitive Information - New
Voluntary Code Published
A new voluntary code on the handling of inside information has just been published. It is vital
reading for anyone who has to deal with issues relating to price sensitive information. The
code - ‘The principles of good practice for handling inside information’ - is contained in the
FSA’s Market Watch, Issue 27 and contains good practical guidance on the steps to be taken
when dealing with inside information.
Background
According to the FSA, there was a slight increase in 2007 in the proportion of significant market
announcements by listed companies which were preceded by abnormal price movements,
suggesting that inside information may have leaked, as compared with 2006. The FSA
expressed considerable concern about this trend and has undertaken a major thematic review
designed to develop responses to this problem in the context of public takeover bids.
The FSA published its preliminary results in July 2007 in issue 21 of its Market Watch
Newsletter - see link below.
(www.fsa.gov.uk/pubs/newsletters/mw_newsletter21.pdf)
Following this the FSA asked FSA regulated firms to review their internal policies and
procedures for handling inside information, and hosted meetings with them to discuss
proposals to (i) strengthen ‘need to know’ policies, (ii) manage leak enquiries, and (iii)
develop improved IT controls. It also acted as a facilitator of an industry working group that
was charged with developing a set of principles to assist unregulated organisations in relation
to the same issues (e.g. accountants, lawyers and other professionals, printers, cleaners,
suppliers of temporary staff etc).
The New Voluntary Code
On 5 June 2008 the FSA published issue 27 of Market Watch in which it gives its comments
on the second phase of its thematic review and which includes the working group’s voluntary
code entitled ‘Principles of good practice for handling inside information’ (the “Principles”).
A link to Market Watch 27 is here:
(www.fsa.gov.uk/pubs/newsletters/mw_newsletter27.pdf)
The Principles are directed towards unregulated organisations because FSA regulated firms,
fully listed companies and most AIM companies should already have in place policies and
procedures to deal with the matters covered by the Principles.
The Principles are not a replacement for existing rules and regulations and are not mandatory,
although they do have the backing of many key industry bodies. The purpose of the Principles
is to promote heightened awareness of recommended ways to protect sensitive information.
The Annex to the Principles contains practical guidance as to steps that might be taken, and
it is intended that this guidance will be updated from time to time as best practice develops.
Investment Management Alert
The Principles, which run to only 6 pages and are very
user-friendly, recommend that the following steps be
taken:
1. Establishment of policies and procedures for the
control of access to inside information;
2. Adequate training of staff as to the importance of
keeping information secret;
3. Implementation of ‘need to know’ policies;
4. Exercise of reasonable care in ensuring that any
third party to whom information is provided is
aware of its obligations regarding the use and control of information;
5. Limiting access to inside information on IT systems
and improving IT security; and
6. Introduction of personal dealing policies.
Recommended Action Points:
Anyone who may come into contact with
unpublished price sensitive information should
ensure that they are aware of the best practice
recommendations in the Principles.
FSA regulated firms, fully listed companies
and the majority of AIM companies should, as
appropriate, review existing policies and procedures
for the handling of inside information and consider
whether any improvements should be made in the
light of the new Principles.
Unregulated organisations which may come into
contact with inside information should (i) study the
Principles carefully, (ii) consider the applicability
of the Principles to their organisation, and (iii)
implement measures of the kind described in the
Principles to the extent not already in place.
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