The Court of Justice of the European Union has held in Case C-363/24, Finansinspektionen v Carnegie Investment Bank AB that a communication informing a person that someone has been placed on an insider list and is prevented from trading can, in itself, constitute inside information under the EU Market Abuse Regulation (MAR). This is even where the underlying reasons for the person's inclusion on the insider list are not disclosed. The judgment also confirms that information which later proves to have been incorrect at the time it was communicated may still qualify as inside information, provided it was credible at the time and capable of conferring an economic advantage on the recipient. 

Background

The case arose from proceedings brought by the Swedish Financial Supervisory Authority (Finansinspektionen) against Carnegie Investment Bank AB, a Swedish bank, seeking to impose a fine for insider dealing under Articles 8 and 14 of MAR. 

Carnegie held Starbreeze AB shares as collateral under a depository loan agreement with Varvtre AB, a company owned by BAK, who was Starbreeze's Chief Executive Officer and main shareholder. Following a decline in the Starbreeze share price, Varvtre's credit with Carnegie became over-indebted, and on the morning of 15 November 2018, Carnegie initiated a sale of the pledged Starbreeze shares. 

At 13:32 on 15 November 2018, Starbreeze's head of communications sent an email to Carnegie stating that BAK had been logged on Starbreeze's insider list and could not sell after 13:33. Crucially, the email did not state why BAK had been placed on the insider list. It later transpired that the reason was that BAK had been informed of the resignation of Starbreeze's Chief Financial Officer, but this was not communicated to Carnegie. It was also the case that, at the precise moment the email was sent, BAK had not yet formally been placed on the insider list; that occurred a few minutes later, at 13:35. 

When it received the email, Carnegie suspended the share sale, before resuming it later that afternoon. On 23 November 2018, Starbreeze issued a press release announcing, among other things, that revenue was lower than expected and that the CFO no longer held his post. 
The Swedish courts reached differing conclusions on whether the email was inside information and referred the issue to the CJEU. 

The CJEU's analysis

When is information "of a precise nature"?

Under Article 7(1) of MAR, inside information must satisfy four essential elements: (i) it must be of a precise nature; (ii) it must not have been made public; (iii) it must relate, directly or indirectly, to one or more financial instruments or their issuers; and (iv) if it were made public, it would be likely to have a significant effect on the prices of those financial instruments. 

Under Article 7(2) of MAR, information is deemed to be of a "precise nature" if two cumulative conditions are met: first, it must indicate a set of circumstances which exists (or may reasonably be expected to come into existence), or an event which has occurred (or may reasonably be expected to occur); and second, it must be specific enough to enable a conclusion to be drawn as to the possible effect of those circumstances or events on the prices of the relevant financial instruments. 

The Court emphasised that the only information excluded from the concept of inside information by virtue of the precision requirement is "information that is vague or general, from which it is impossible to draw a conclusion as regards its possible effect on the prices of the financial instruments concerned." A case-by-case examination is necessary.

Why an insider notification can itself be inside information

The Court drew a critical distinction. A communication merely stating that a person has been placed on an insider list does not, in principle, per se and in the absence of additional context, have an effect on the prices of the relevant financial instruments. Inclusion on an insider list is, of itself, an administrative act falling within the issuer's internal organisation under Article 18 of MAR. 

However, the position changes materially where additional elements are attached to the communication. In this case, the email stated not only that BAK had been placed on Starbreeze's insider list, but also that he was prevented from selling shares. The Court held that this additional information transforms the character of the communication. 

The court said that information about the mere fact of being placed on an insider list is "in principle and per se, neutral".  However, the addition of a sales prohibition necessarily implies that the person has knowledge of an event having adverse implications for the interests of the company. Such information can provide incentives for an investor aware of that fact to sell rather than buy shares, or at any rate influence that investor's decisions in the market. In other words, the communication indirectly signals the existence of a negative underlying event, without the recipient needing to know the precise nature of that event. 

This is because a reasonable investor would be likely to use the fact that a senior officer of an issuer has been placed on an insider list and is prohibited from trading as part of the basis of his or her investment decisions. The party in possession of that information obtains an advantage, to the detriment of those who do not have it, by being placed in a more favourable position vis-à-vis other investors to trade in financial instruments. 

The Court also stressed that the identity and role of the persons concerned are relevant contextual factors. In this case, BAK was Starbreeze's CEO and main shareholder, which heightened the significance of the notification that he had been placed on the insider list with a trading prohibition. 

Incorrect information can still be inside information

The CJEU also addressed the fact that, at the precise moment the email was sent, BAK had not yet formally been placed on the insider list (that occurred five minutes later). The Court held that the correctness of information is not one of the four essential elements of the definition of inside information under Article 7(1) of MAR. 

Information which, in the course of an ex post investigation, turns out to be incorrect may nevertheless constitute inside information if, on the date when it was disclosed, it could be regarded as credible and was capable of conferring an economic advantage on the party in possession of it vis-à-vis other investors. The assessment of credibility is an ex ante one, taking account of the reliability of the source and any other variables likely to affect the financial instruments in the given circumstances. 

In this case, the fact that BAK's inclusion on the insider list occurred a mere five minutes after the email was sent made the inaccuracy particularly marginal. The Court noted that the incorrectness lay not in the fact that the inclusion did not happen at all, but merely in a short timing discrepancy.

Defences under Article 9(3) of MAR

The Swedish courts must also consider whether Carnegie's suspending and then resuming the sale of pledged shares could fall within the safe harbour under Article 9(3) of MAR. Under Article 9)3), a person is not deemed to have used inside information if the transaction was carried out in discharge of a pre-existing obligation that had become due in good faith. However, under Article 9(6), an infringement may still be found if the competent authority establishes there was an illegitimate reason for the transactions concerned.

What are the takeaways for the UK?