The new Disclosure Rules for listed companies

United Kingdom

The Financial Services Authority’s Disclosure Rules will govern the obligations of companies whose securities are listed on the Official List to publish inside information, the circumstances in which they are allowed to delay publication, and the disclosure of dealings by their directors, senior managers and connected persons.

Market abuse regulations

The Directive on Insider Dealing and Market Manipulation (2003/6/EC), known as the Market Abuse Directive, is being implemented in the UK on 1 July 2005, when the main provisions of the Financial Services and Markets Act 2000 (Market Abuse) Regulations 2005 will come into force. Among other things, the Regulations will amend the market abuse provisions in Part 8 of the Financial Services and Markets Act (adding to section 118 and making what is already convoluted even more complicated). These provisions apply to behaviour relating not just to listed securities but to securities on markets such as AIM and OFEX, and to related derivatives and grey market dealings.

Basically, market abuse under the new regime will occur when insiders misuse or seek to misuse inside information for their own or others’ advantage, or where someone (who is not necessarily an insider) tries to distort the price of shares or other securities by misleading the market (for example, by engaging in artificial transactions or disseminating false or misleading information).

Insiders and inside information

An insider is someone who has inside information for any of a number of reasons, including through being part of the relevant company’s management, through his employment, profession or duties, or through criminal activity.

The full definition of inside information is contained in the new section 118C of the Financial Services and Markets Act. Broadly, it is information directly or indirectly relating to a publicly-traded company or its securities that:

  • is precise, in the sense that it indicates actual or likely circumstances or events and is specific enough for a conclusion to be drawn on the possible effect on price is not generally available and
  • would be likely to have a significant effect on the price of the company’s securities if it were generally available (judged by whether a reasonable investor would take account of it in making investment decisions).

This definition is going to be used not just in deciding whether an insider is guilty of market abuse: it is also the basis on which listed companies must (unless otherwise permitted) disclose information to the market. In applying the test, companies are to look at the effect on their own securities, and not those issued by other companies; but the test will apply even if the effect is only on securities traded on a regulated market outside the UK.

A new structure to the rulebook

The launch of the new market abuse regime coincides with the radical restructuring of the listing regime accompanying the implementation of the Prospectus Directive. In place of the UKLA Sourcebook, which was co-opted more or less impromptu into the FSA Handbook in 2001 without adopting its format, there will be a new block of the Handbook comprising three sourcebooks: the Listing Rules, the Prospectus Rules and the Disclosure Rules.

Disclosure obligations formerly dealt with in chapters 9 and 16 of the Listing Rules will be replaced by the Disclosure Rules, as will the PSI Guide. The Disclosure Rules apply where securities are admitted to trading on a regulated market; this does not include AIM.

The sourcebooks are in the rather unprepossessing style of the other volumes of the Handbook, with up to six levels of paragraph-numbering. Some words are italicised, to show that they are defined in the (lengthy) omnibus Handbook Glossary. Paragraphs classified as R are rules, while G indicates guidance (which can be relied on against the FSA). References to paragraphs of the Disclosure Rules are prefixed DR.

Disclosure of inside information

The primary obligation on listed companies (wherever incorporated) under the Disclosure Rules will be to publish inside information that directly concerns them as soon as possible. The directors must carefully and continuously monitor changes in circumstances to see if disclosure is required. The company must take all reasonable care to ensure that the disclosure is not misleading, false or deceptive and does not omit anything likely to affect its import.There is guidance on how companies should identify inside information and apply the tests set out in the statutory definition. For example, the guidance says that:

  • there is no benchmark figure as to what a significant effect on price would be: it will vary according to the particular company
  • the significance of the information to the reasonable investor (who is assumed to be looking to maximise his return) will be different for different companies, depending on their size, recent developments and market sentiment about them and the sectors they are in
  • the anticipated impact of the information should be seen in the light of the totality of the company’s activities, the reliability of the source and other market variables, but information is likely to be relevant if it affects the company’s assets and liabilities, the performance (actual or expected) or the course of its business, its financial condition, major new developments in its business or information previously disclosed to the market.

Disclosed information must be posted on the company’s website by the close of the business day after the announcement is made, and must remain there for at least a year. This must never precede notification of the information to the company’s regulatory information service.

Delayed and selective disclosure

A short delay in disclosing inside information will be permissible if an unexpected and significant event occurs and the company needs to clarify the situation. If so, it must put out a holding announcement, setting out as much detail as possible, explaining why a fuller announcement cannot be made and undertaking to announce further details as soon as possible.

So long as it is not likely to mislead the public, a longer delay will be acceptable if the company decides that the delay is desirable “so as not to prejudice its legitimate interests”. This has a restricted meaning: a company can, for example, put off announcing something which is still being negotiated (such as an acquisition or disposal) where disclosure would be likely to affect the outcome or normal pattern of negotiations. Where the company’s financial viability is in grave and imminent danger, a delay is allowed if disclosure would seriously jeopardise the interests of existing and potential shareholders by undermining ongoing rescue negotiations. That merely means a delay in disclosing the fact or substance of the negotiations, not its financial condition, even on the grounds that subsequent negotiations might be jeopardised by the disclosure.

As a corollary, the circumstances under which the company is permitted to delay announcing the information inevitably mean that it has to be able to disclose the information selectively to persons who have a valid reason to receive it: for example, to its advisers, whoever it is negotiating with, lenders and others. Selective disclosure will only be allowed where a delay is allowed, and only if the person receiving the information owes the company a duty of confidentiality and the company can ensure that the information is kept confidential. Companies may wish to put contractual undertakings in place – even with, for example, the other side’s advisers - rather than rely on the common law duty of confidence.

Whenever disclosure is delayed the company must have a holding announcement ready in case the confidentiality of the information cannot be ensured or is actually or likely to be breached. It is recognised in the guidance that the company may not be responsible for a breach of the rule if the recipient of the information breaches his duty of confidence – but the company would have to announce the information, as with any other leak of delayed inside information.

Where a situation is developing, or if there is largely accurate press speculation or market rumour based on inside information, it may not be possible to continue a delay.


The Disclosure Rules will oblige companies to establish effective arrangements to restrict access to inside information within their own organisations. The new Listing Rules will contain six Listing Principles, the second of which requires companies to take reasonable steps to establish and maintain adequate procedures, systems and controls to enable them to comply, among other things, with the obligation to make timely and accurate disclosure under the Disclosure Rules. Related guidance places particular emphasis on the timely identification of inside information and ensuring that the directors properly consider the information and whether it should be disclosed – in other words, procedures should be in place to get directors together at very short notice.

Companies will need to institute regular market abuse training, encompassing not only the recognition of inside information but also its containment. Protocols and documentation should be ready for making people outside the company insiders at short notice (including putting in place contractually binding confidentiality undertakings and requiring them, if appropriate to maintain an insider list and deliver a copy on request).

Clerical and other staff may need to be instructed on safeguarding relevant paperwork and placing secured access rights on electronic documents. Care should be taken to ensure that emails are not accidentally circulated to non-insiders, and screens are not left unlocked and unattended.

Staff will have to be made aware of the relevant legal and regulatory duties, and the legal sanctions attaching to the misuse or improper circulation of inside information. The message is that:

  • a person who discloses inside information to another person otherwise than in the proper exercise of his employment, profession or duties is committing market abuse, and may be committing the criminal offence of insider dealing. Insiders therefore always need to be sure to whom and why they are revealing inside information, even if to someone else in the company
  • the FSA can censure and/or impose a penalty of such amount as it considers appropriate on any person, and the court has power to require that person to disgorge profits and/or restore an injured party’s loss. If a person is found guilty of insider dealing, the court can impose up to seven years’ imprisonment and/or an unlimited fine
  • failure to comply with the company’s procedures will be treated as a serious disciplinary offence.

Insider lists

Companies will be obliged to draw up a list of persons working for them (including certain individuals working for another firm or company) with access to inside information. This will include secretaries and any other members of staff whose assistance with documentation will be required. Persons within the company who are named in the insider list will be subject to the Model Code restrictions on dealing under the new Listing Rules.

Insider lists must be kept for at least five years from the date on which they are drawn up or were last updated, and must be delivered to the FSA as soon as possible if requested.

An insider list must set out:

  • each person’s identity
  • the reason why that person is on the list
  • the date on which the list was created and updated.

The list must be promptly updated whenever the reason a person is on the list changes, or inside information is provided to someone not on the list, or to show the date when someone on the list ceased to have access to inside information. There is no requirement to list anyone from an outside organisation that is not acting for the company or on its account (for example, the other side’s lawyers).

Only the principal contacts – with whom the company has had direct contact and who have access to inside information – at an organisation acting for the company or on its account need feature on the company’s insider list, but this concession is only available if the company has made effective arrangements for that organisation to maintain its own insider list and keep it for the five-year period, and to provide a copy to the company as soon as possible upon request. The company must also ensure that the organisation takes the necessary measures to ensure that everyone on the list acknowledges the legal and regulatory duties entailed and is aware of the sanctions attaching to the misuse or improper circulation of inside information. Where, arising out of the outside organisation’s role, third parties (such as foreign lawyers and other experts) are brought in to act on the company’s account and receive inside information, the company should put corresponding arrangements in place with the third party rather than put the onus on the outside organisation, especially as the Disclosure Rules provide that whoever receives inside information selectively should owe a duty of confidentiality to the company.

Persons discharging managerial responsibilities

Under Chapter 3 of the Disclosure Rules directors, certain senior management below board level and their respective connected persons will be required to notify their own dealings in the company’s securities within four business days. The obligations are placed directly on the relevant persons (including connected persons), but only if the company is incorporated in the UK or is a non-EEA state issuer where the UK is its home member state under the Prospectus Directive. The company is in all cases obliged to announce the information notified to it or (if the notification obligation does not apply) of which it becomes aware.

The Disclosure Rules give no indication as to what dealings are caught, but the FSA has stated that it believes that the grant or exercise of share options are within the scope of the rules.

The Regulations define persons discharging managerial responsibilities as including, as well as directors, senior executives with regular access to relevant inside information who have the power to make managerial decisions affecting the company’s future development and business prospects. This is probably a fairly rarefied category (of the know-it-when-you-see-it type).

There is also a new definition of connected persons for these purposes, building on what is already one of the least user-friendly sections in the Companies Act. The category includes:

  • section 346 connected persons
  • relatives of the relevant director or executive who have shared his or her household for at least 12 months before the dealing and
  • bodies corporate where the relevant director, executive, section 346 connected person or relative is a director or in a corresponding senior executive position.

These definitions will be co-opted into the new Model Code.

The Companies Act disclosure of directors’ dealings regime will continue to apply to directors. It does not match the Disclosure Rules obligations (for example, in the time allowed for notification or as to what is notifiable). If the company receives separate notifications under the two regimes in respect of the same dealing, it must make that clear when it makes its announcement.


The FSA has said that it will publish a special edition of List! containing non-binding guidance on the Disclosure Rules – for example, in relation to best practice in dealing with inside information and various points presently addressed in the PSI Guide that are not thought to be suitable as formal guidance.

At the time of writing, List! had not appeared, so we do not know whether the FSA is going to give comfort on a number of concerns that are being raised, such as:

  • what the directors’ obligation to monitor changes in circumstances carefully and continuously will mean in practical terms
  • the need for a clearer delineation of persons discharging managerial responsibilities”
  • whether organisations providing banking, insurance and similar services – perhaps indirectly, as part of a syndicate or as a reinsurer – are to be regarded as acting on the company’s behalf or on its account, so that the insider list regime will apply to them when they have access to inside information
  • where the line is to be drawn in deciding whether a person - particularly in an external organisation - with only incidental involvement in a transaction (because, for example, he works in the photocopying department) should be entered on an insider list
  • whether information that relates only indirectly to the company (for example, information about another issuer's securities) can be information that “directly concerns” the company, and hence subject to the disclosure requirement.

We shall report any significant developments via