The executive of the Exchange's listing department yesterday confirmed a decision by its officials to reprimand Mr Newmarch and the Pru's chairman, Sir Brian Corby, over the episode.
The decision followed a meeting at the exchange on Wednesday at which evidence was taken from Mr Newmarch, David Prosser, chief executive of Legal & General, and officials from the Treasury.
But the Pru remained defiant last night, and will make a further appeal to the quotations committee, which is the last resort under the rules of the Stock Exchange.
The exchange maintains that Mr Newmarch and Sir Brian breached the model code governing directors' share dealings contained in the listing rules. The affair is a particularly sensitive one for the exchange, as its chief executive, Michael Lawrence, was formerly finance director of the Pru. He has excluded himself from taking any part in the enquiry as a result, but it is likely that John Kemp-Welch, chairman of the Stock Exchange, is being kept informed of developments.
Mr Newmarch exercised and sold 208,750 share options on 25 October, netting a profit of more than £200,000. The transaction took place just hours before the Securities and Investments Board published a report into pension transfers that was critical of how life insurance companies such as the Pru had sold personal pensions.
Sir Brian faces exchange censure for authorising the deal.
Mr Newmarch resigned abruptly as chief executive of the Pru last month, indicating he was fed up with dealing with the regulatory regime in financial services. But the statement by the company announcing his departure included a reference to the fact that the exchange was investigating share dealings by him. Sir Brian, a former chief executive of the Pru, has taken over in the meantime.
The Pru maintains the deal was entirely proper because the details of the SIB report were widely known and did not constitute price-sensitive information. But as The Independent revealed yesterday, Treasury officials gave evidence to the Stock Exchange that Mr Newmarch said the report would hit the Pru's share price at a meeting with Kenneth Clarke, Chancellor of the Exchequer, a week before the report was published.
The Pru disputes the Treasury's version of events. Mr Prosser gave evidence at the appeal because he was present at the meeting with the Chancellor at which Mr Newmarch allegedly made the remark about price-sensitivity.
Mr Prosser is understood to have backed Mr Newmarch's account of the meeting, but the Treasury officials gave evidence that the contentious remark was made as the men were leaving after the formal meeting had ended.
A spokesman for the Pru said last night: "We're not going to say anything about this matter until the process is completed. But we deplore the persistent leaking of what is supposed to be a private process. This is an ongoing process and will continue to go on until all avenues are exhausted.
"The board of the Pru do not accept that the company has acted improperly in any way. All share transactions by Pru directors are governed by the company's rules, which in our opinion completely fulfil Stock Exchange requirements."
A public censure by the Exchange would be a serious embarrassment for the Pru, which enjoys a pivotal position in the City.
Pru insiders believe the Stock Exchange inquiry is part of a campaign by regulators to "get" Mr Newmarch and the company for its opposition to the direction being taken in the regulation of financial services.
Mr Newmarch was an outspoken critic,of the regulators, who, apart from tussling with the Life Assurance and Unit Trust Regulatory Organisation, refused to join the Personal Investment Authority, set up by the Government as the new agency for the protection of small investors.Reuse content