David Prosser: The City doesn't seem to understand its own rulebook

Outlook The fallout from the David Ross affair continues, with the revelation yesterday that City grandee and Conservative Party Treasurer Michael Spencer has also used a substantial shareholding in a company of which he is a director as collateral for personal loans. Like the Carphone Warehouse founder Mr Ross, Mr Spencer did not tell the company in question, the stockbroker Numis, about the loans, or disclose the arrangement to the market.

It's important to note that this case differs from the Ross debacle in several respects. Most crucially, Numis is Alternative Investment Market-listed and the rules on AIM differ to those that govern larger companies. Mr Spencer says his legal team advised him there was no need for the loans to be disclosed.

Other complications include the fact that Mr Spencer, the Numis chairman, holds shares in the stockbroker jointly and indirectly. With his wife and family, he owns 55 per cent of IPGL, an investment company that in turn owns 12 per cent of Numis. It was IPGL that took out the loans that have now been disclosed, using the Numis stake as collateral in an agreement with HSBC.

The fact that Mr Spencer's lawyers gave the advice they did should save him from Mr Ross's fate. Mr Spencer will argue there is no question of him resigning the Numis chairmanship because, having asked his legal team for guidance about the loans, he believed he was on the right side of the AIM rules in not disclosing them.

Even so, a couple of difficult questions need answering. Above all, whatever the legal niceties of this business, why did Mr Spencer not consider it a courtesy to let Numis know that 12 per cent of its shares had been pledged in this way?

Even before the fall of David Ross alerted people to the significance of this type of arrangement, surely the stockbroker would have wanted to know that security over such a large chunk of its shares had been granted to HSBC.

Second, how exactly did Mr Spencer's legal advisers come to the conclusion that the loans did not need to be disclosed?

The rules on AIM are often criticised as lax, but in this case seem pretty clear. They require the disclosure of all "dealing" in shares by a company's directors. The definitions of dealing include the granting of "any option relating to such securities or of any right or obligation, present or future, conditional or unconditional, to acquire or dispose of any such securities".

The language may be tortuous, but it's not that difficult to understand.

One party to emerge from this business with an enhanced reputation is Numis itself. Mr Spencer's arrangements seem to have emerged following a request from the stockbroker to its directors to disclose any use of their shareholdings as collateral. Well done to Numis for seeking to ensure it wasn't exposed to the sort of problem that hit Carphone Warehouse. And well done, too, for disclosing its discovery so soon after Mr Spencer made his position clear.

Numis, for one, seems to have a pretty good grip on what the UK listing authorities require from their charges. But in case any doubt remains elsewhere, it is now time for new guidance to be published on disclosure. With two such high-profile cases having emerged in the space of a month, the City needs to make sure there is absolutely no excuse for anyone falling foul of the rules in future.

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