Alarm over draft guidelines on briefings: City fears information flow to markets will become more difficult, and insider dealing more lucrative

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The Independent Online
BROKERS and analysts are set to give the London Stock Exchange a rough ride over draft guidelines aimed at clamping down on the leaking of price-sensitive information.

Under the guidelines, published yesterday, companies will have to abandon the briefing of selected analysts and journalists and start releasing regular trading statements.

All announcements that a company judges price-sensitive must go through the exchange's own Company Announcements Office (CAO). However, the exchange said it did not want to prompt a blizzard of unimportant announcements.

There is a general climate of fear among companies over how they should release sensitive information to the market, and many in the City are worried that the exchange's approach will merely drive companies and the capital markets wider apart.

The City's immediate reaction was that, although guidelines are needed, the exchange's suggestions would frighten companies further, making the information flow to the markets more difficult. They could even make insider dealing more lucrative.

On the plus side, good analysts will be at a premium since bad ones will be unable to rely on informal tip-offs from companies.

The Consultative document on the dissemination of price-sensitive information calls for interested parties to deliver their views by 6 December. The revised guidelines will then be issued as a handbook in the spring.

Martin Hall, chairman of the exchange's working party, said the guidelines were prompted by three developments: new legislation on insider dealing; the conviction of Thorold Mackie, one of Scotland's most respected company analysts, on insider dealing charges (the case is going to appeal); and the censure by the Stock Exchange of the condom manufacturer LIG for briefing analysts on a profit warning without an announcement through the exchange.

Philip Jolowicz, legal director of Smith New Court, said: 'It's a difficult area, and the Stock Exchange recognises that. With the expanding legal and regulatory structure, a practical guideline is to be welcomed.'

The aim is to bring information to the market fairly and in a simple and clear framework. The exchange has not, however, sought to define 'price-sensitive', which its lawyers admit is 'indefinable'. The onus will be on companies to decide what information will affect their share price. One leading securities executive described this as pathetic. 'If the Stock Exchange can't define what is price-sensitive, how can companies?'

The exchange will use its existing powers of public or private censure to enforce the guidelines. Mr Hall insisted the draft was not a code of best practice, like Cadbury. 'It's not a list of things to do and not to do in order to be a good boy.'

American securities houses already have experience of dealing with tough laws on dissemination of information. A senior figure at a US house in London is worried that the new guidelines will lack teeth. 'If people break the rules then they should be sent to jail and fined a lot of money, thrown out of the business and embarrassed.'

Under the guidelines, companies should consider a policy of announcing regular updates on their trading position and immediate prospects. These could be either an unaudited, quarterly financial trading statement or an update with no financial figures at the close of the year and half-year.

Companies should not observe a 'close period' for announcements before a regular reporting event if the market needs to be given information.

The guidelines say that relationships with journalists 'need particularly careful management'.

The exchange's working party was set up in July together with the Hundred Group of finance directors, the Association of British Insurers, the Institute of Investment Management and Research and the Institutional Fund Managers Association. The guidelines tell companies how they should comply with regulators and deal with analysts, journalists, advisers, employees and investors.

View from City Road, page 34

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