Law 'lets firms hide bad news': Insider trading rules curb flow of information
Sunday 18 September 1994
They identify this as one of the most serious consequences of the curb on the flow of information from public companies to the market as a result of the new law.
'I know several of my firm's clients that are using it as an excuse, but I can't name them,' said one analyst at a large broking house.
'The rules give finance directors a licence not to talk to us,' said another. 'That information could be lost to the market. We either have to publish speculation or nothing at all.'
Even directors of companies with nothing to hide are giving up the practice of taking analysts for private lunches and have become cautious about answering one-on-one questions or correcting errors in analysts' reports. That means the brokers do not know as much as they used to about the performance of firms between their twice-yearly results.
It is the opposite of what the London Stock Exchange, now chaired by John Kemp- Welch, was hoping for when it published Guidance on the Dissemination of Price Sensitive Information in March.
The new rules complement insider dealing laws introduced by the Government to bring London's markets into line with a European Union directive. The change follows a series of insider trading scandals, most of which went unpunished. However, the tougher law has yet to be tested in court.
That has added an extra burden to the frustration of analysts unable to get raw data on the firms in their sectors, say compliance officers at several City brokers.
Analysts are self-censoring their reports to make sure they do not inadvertently reveal sensitive information.
'Analysts are saying to finance directors 'please don't tell me information that would keep me from publishing,' ' one compliance director said.
When the guidelines were introduced, some observers hoped they would result in a move towards the American practice of quarterly reporting. But John Rudofsky, director of financial PR at Citigate Communications, said that had not happened. 'I can't think of any company that's moved to quarterly reporting that wasn't already doing so because it had a US listing,' he said.
There has been a 10 per cent increase in traffic on the Regulatory News Service this year, but a spokeswoman at the Stock Exchange said that could be due to a similar rise in activity on the market. She added that the Exchange will reconvene the working group next February to assess the impact of its guidelines.
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