10 trading guidelines for insiders
The Financial Supervisory Authority (formerly Financial Supervision) has published, in the publication Markkinat 3/2007, 10 trading guidelines to steer insiders into adopting a good code of conduct. The Financial Supervisory Authority has updated the 10 trading guidelines for insiders based on the Market Abuse Regulation (EU) 596/2014 (hereinafter referred to as “MAR”). The trading guidelines bring together important considerations which it is advisable for an insider to take into account in trading.
Presented below are the 10 operating guidelines of the Financial Supervisory Authority that allow insiders to avoid suspicions of abuse of inside information in connection with their own transactions. The list is given by way of example only, and the guidelines are not intended as binding operating instructions.
Interpretations and opinions related to MAR
As a regulation, MAR is EU law and thus directly applicable. The Commission Regulations adopted pursuant to MAR are binding regulation as well. The European Securities and Markets Authority (ESMA) may adopt interpretations related to the implementation of regulation under MAR and give instructions for its application in practice. The interpretations and instructions given by ESMA in relation to MAR may change the interpretations and instructions given by the Financial Supervisory Authority. In such situations the interpretations and instructions given by the Financial Supervisory Authority in relation to MAR will be superseded by those given by ESMA. However, such changes in the interpretations and instructions given by the Financial Supervisory Authority do not have retroactive effect.
1. Seek to make long-term investments
If possible, buy shares at the start of your employment provided that you do not, at that time, possess inside information related to your company or its financial instrument. Otherwise, you may in principle use trading plans for your acquisitions. You may also anticipate your potential needs for sales and issue a trading plan for sales. Avoid active trading.
2. You may use trading plans (See model plan at the end of the text)
You may issue an explicit trading plan in writing, with as detailed terms and conditions as possible for the volume of securities purchased or sold, their prices and trading times or the grounds on which they are determined. Remember, however, that you must not have inside information when issuing such a plan; alternatively, the plan, under its terms and conditions, must not be executed prior to disclosure or expiration of such inside information.
The trading plan should be documented in a reliable manner, e.g. by providing a copy of the plan to the person in charge of insider issues at the company or having it recorded in the minutes of a board meeting. If you are in possession of inside information, do not amend the terms and conditions of the plan or give further instructions to securities intermediaries for post-execution of the plan. If you have insider information, you are forbidden from interrupting or ending the execution of the plan (see also item 9).
The company may also publish the existence of trading plans on its website, for instance. In doing so, no unfounded suspicions concerning abuse of inside information will become public in respect of trades that have been executed during the time when the insider may have had access to inside information.
3. If you or persons closely associated with you have discretionary portfolio management agreements based on full powers of attorney, consider the need to exclude the securities of your own company and related derivatives from the agreements
To avoid unnecessary suspicions of abuse of inside information, it is advisable that your portfolio manager should not trade with the securities of a company to whose permanent insiders you belong.
4. Ensure that you execute trades at a time other than the closed period
Any persons discharging managerial responsibilities within an issuer are subject to a closed period of 30 days before the announcement of an interim financial report or a year-end report.
During the closed period, a person discharging managerial responsibilities is not allowed to carry out, on his or her own account or on the account of a third party, any transactions relating to the issuer’s shares or debt instruments or to their associated derivatives or other financial instruments. In addition to the personal transactions of the person discharging managerial responsibilities, the closed period concerns any situations in which the person discharging managerial responsibilities carries out transactions on the account of persons closely associated to him or her, such as his or her controlled corporations, or on the account of a third party.
Exceptionally, a person discharging managerial responsibilities within an issuer may execute trades during a closed period if one of the following requirements under Article 19(12) of MAR is met:
a) if exceptional circumstances, such as severe financial difficulty, require the immediate sale of shares, or
b) if the transactions involved are made under, or related to, an employee share or saving scheme, qualification or entitlement of shares, or transactions where the beneficial interest in the relevant security does not change, and if the person discharging managerial responsibilities is able to demonstrate that the particular transaction cannot be executed at another moment in time than during the closed period.
See also the conduct-of-business rules set down in Commission Delegated Regulation (EU) 522/2016 for trading permitted during a closed period.
5. Time your trading to take place after results publication
Avoid, however, the execution of trades immediately after the financial result disclosure (e.g. on the day of publication) in order to also enable other investors to assess the importance of new information. Also ensure at that time that you are not on an insider list or that you do not otherwise possess inside information.
6. If you are one of your company's insiders, you may ensure from the person in charge of insider issues at the company that there are no insider barriers to your trading. However, you yourself should also consider whether you have inside information, as the responsibility lies with you
Remember that the person in charge of insider issues at your company does not necessarily know all the projects or other information you are aware of. You may have inside information even though you have not been entered on an insider list, or in situations where insider lists have not yet been drawn up.
7. With regard to the prohibition against insider trading, irrespective of inside information, insiders may in principle receive stock options related to incentive schemes and subsequently subscribe for shares. The same applies to receipt of shares as bonuses. In such situations, persons discharging managerial responsibilities should take into account the provisions on closed periods (see item 4)
8. If you have inside information, do not sell or buy stock options (see item 9)
This prohibition also applies to sale and subscription arrangements if you have negative inside information. In these arrangements, a person sells part of his/her holdings of stock options to finance share subscriptions. You may, however, execute a sale and subscription arrangement if the inside information you have is clearly positive or if you have previously issued a trading plan on the arrangement at a time when you did not yet have inside information.
9. Purchase of financial instruments (regardless of a trading plan) will be allowed if it is objectively justified to assume that the inside information you have is clearly negative regarding the price of the financial instrument. Similarly, sale of financial instruments will be allowed if it is justified to assume that the inside information you have is clearly positive regarding the price of the financial instrument
Such information may, by definition, be inside information, but the conditions for abuse of inside information and intention of obtaining benefit are not fulfilled in these cases. According to recital 23 of MAR, the prohibition against insider dealing should apply where a person who is in possession of inside information takes unfair advantage of the benefit gained from that information by entering into market transactions in accordance with that information.
However, you should note that the markets may react to the inside information that you have and that will be disclosed at a later point in time in a manner that differs from the way you are assessing the information on the basis, for example, of your possibly more in-depth knowledge of your company’s affairs. Use this opportunity only as an exceptional measure and only when you are sufficiently sure of the effect of the information on the price of the financial instrument.
10. Purchase, sale and subscription of financial instruments will be allowed if you know that the other party to the deal has the same inside information as you have
According to recital 23 of MAR, the essential characteristic of insider dealing consists in an unfair advantage being obtained from inside information to the detriment of third parties who are unaware of such information and, consequently, the undermining of the integrity of financial markets and investor confidence. On this basis, it may be considered that the protective purpose of regulation does not impede transactions between two insiders if both parties have the same inside information.
Remember, however, that you cannot disclose the inside information you have to the other party to the deal without a justified reason.
Trading plan (example)
I undertake to buy shares in Company X after publication of the Company's next two interim reports. Securities intermediary Y will execute the purchases during the two weeks following publication of the interim reports so that, after publication of each interim report, a total of 500 shares are purchased, at a price not exceeding EUR x per share. At the time of signing the trading plan, I possess inside information only on project Z. After disclosure or expiration of the project, this plan will be entrusted to securities intermediary Y for execution under the terms and conditions of the plan. No later changes will be made to the plan terms and conditions, and the securities intermediary will execute the plan independently. A copy of this trading plan has been submitted to the person in charge of insider issues at the company.
Signature and date