View from City Road: Insider rules will give lawyers a field day

Goodbye to the City lunch; farewell to the finance director's phone call. Some lawyers are warning their corporate clients that the insider trading legislation that takes effect next week bans just about every communication with shareholders short of a formal announcement to the Stock Exchange.

On the other hand, the exchange itself has produced a pragmatic, non-mandatory set of guidance notes, without the force of law. It has a vagueness and imprecision that lawyers abhor, because they cannot pin it down.

The lawyers are going to have a field day and some companies are already running scared. Exchanges of ideas and information between companies, analysts and professional investors are being restricted permanently in the interests of a cleaner-looking marketplace fair to all investors.

But should the exchange have tried to be more precise? Could it give companies, analysts and investors more comfort that they will not be prosecuted accidentally or rapped over the knuckles in public by the City authorities?

The pragmatic answer is that we have to start from here. The revised insider trading law was passed because it was demanded by a European Union directive, and it is a waste of time in this Parliament asking for the offence to be decriminalised.

The exchange could write detailed clauses to be inserted in the listing rules and indirectly given the force of law. That would turn into as much of a drafting nightmare as the insider legislation. And it would take a lot longer than producing guidance notes. After all, it has even proved impossible to agree an exhaustive definition of price-sensitive information.

The weary answer is that this is probably the best way to do it, as long as the exchange really does conduct an annual review. It should also rethink its refusal to make public more of its decisions, so people can study practical cases.