Insider guidelines get cool response: Exchange will need strong evidence for public censure

THE London Stock Exchange's guidelines aimed at curbing insider dealing received a reluctant welcome from the City yesterday, as sceptics acknowledged that a move towards more formal relations between investors and companies was inevitable.

The 15-page document, 'Guidance on the Dissemination of Price Sensitive Information', is a voluntary code for companies and stock market participants. It will not have legal standing, and the Stock Exchange will only publicly censure parties that blatantly go against the code if it has overwhelming evidence of misbehaviour. The Exchange will, however, privately censure companies in less clear-cut cases.

The code was published ahead of the Government's new insider dealing laws, which come into effect next week.

The Exchange issued a draft on the guidelines last November, and after hearing from more than 70 organisations it incorporated the following points:

Companies will not have incessantly to issue rebuttals of press reports if these are inaccurate because of a mistake by a third party.

Companies need not divulge commercially sensitive information.

Companies should brief employees on what to say to analysts during factory visits and the like.

Companies will be encouraged to talk to their own industry regulators about what might be price-sensitive information.

The guidance does not affect a company's duty to observe the Exchange's Listing Rules. If, however, the Exchange has reason to consider whether or not those rules have been followed, it will take account of judgements honestly made in accordance with the guidelines.

The Exchange has made guidance on sensitive information a top priority. This follows well-known cases such as its public censure of LIG last year and the prosecution for insider dealing of the Scottish analyst Thorold Mackie, whose conviction was quashed on appeal last week.

Sir Andrew Hugh Smith, chairman of the Exchange, said that the guidelines might well contribute to a change in the culture of the marketplace, both in the way that companies make announcements and in the way the market reacts to them.

'It is not revolutionary - many companies have operated in this way for years. But companies lost confidence in their procedures after recent legal changes and disciplinary cases,' he said.

'Without guidance, communication between companies and the market was being substantially reduced. If this guidance can help restore confidence, and encourage a planned approach to communicating, it will have served its purpose.'

The Exchange stopped short of compulsory quarterly reports by companies, in favour of recommending that they should keep in touch with investors as often as possible.

Martin Hall, who chaired the guidance working party, said they did not intend to push towards compulsory quarterly reporting. 'But the more often a company communicates with the market, the less chances there are of shocks.'

Chris Parsons, a partner with solicitors Herbert Smith, who has been advising companies on implementing the new guidelines, later echoed this view.

'Companies are relieved that the Exchange has not introduced formal rules on quarterly reporting,' he said. 'This would be OK for ICI but it would be unfair on smaller companies, which just do not have the resources (to produce the extra reports).

'Companies should rethink their approach (to sensitive information), otherwise there will be more public and private censures by the Exchange.'

Critics of the guidelines think they lack teeth. Mr Hall admitted the Exchange could make public censures of companies only when it had very strong evidence to back up its case.

The Exchange will review the working of the code in a year's time, and Mr Hall said it should evolve with experience.

View From City Road, page 32

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