CELEX: 62011CJ0019
Directives 2003/6/EC and 2003/124/EC
Inside information
Notion of ‘precise information’
Intermediate steps in a protracted process
Reference to circumstances or an event which may reasonably be expected to come into existence or occur
Interpretation of the wording ‘may reasonably be expected’
Public disclosure of information relating to change of a manager of a company

This reference for a preliminary ruling concerns the interpretation of point 1 of Article 1 of Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) (
OJ 2003 L 96, p. 16
), and also Article 1(1) of Commission Directive 2003/124/EC of 22 December 2003 implementing Directive 2003/6 as regards the definition and public disclosure of inside information and the definition of market manipulation (
OJ 2003 L 339, p. 70
).
The reference has been made in proceedings between Mr Geltl and Daimler AG (‘Daimler’) concerning the loss he claims to have suffered as a result of the allegedly late public disclosure by that company of information relating to the early departure of the Chairman of its Board of Management.
Legal context
European Union law
Directive 2003/6
Recitals 2, 12, 16 and 24 in the preamble to Directive 2003/6 state:
‘(2)
An integrated and efficient financial market requires market integrity. The smooth functioning of securities markets and public confidence in markets are prerequisites for economic growth and wealth. Market abuse harms the integrity of financial markets and public confidence in securities and derivatives.
...
(12)
Market abuse consists of insider dealing and market manipulation. The objective of legislation against insider dealing is the same as that of legislation against market manipulation: to ensure the integrity of Community financial markets and to enhance investor confidence in those markets. ….
...
(16)
Inside information is any information of a precise nature which has not been made public, relating, directly or indirectly, to one or more issuers of financial instruments or to one or more financial instruments. Information which could have a significant effect on the evolution and forming of the prices of a regulated market as such could be considered as information which indirectly relates to one or more issuers of financial instruments or to one or more related derivative financial instruments.
...
(24)
Prompt and fair disclosure of information to the public enhances market integrity, whereas selective disclosure by issuers can lead to a loss of investor confidence in the integrity of financial markets. …’
The first subparagraph of point 1 of Article 1 of that directive defines ‘inside information’ as ‘information of a precise nature which has not been made public, relating, directly or indirectly, to one or more issuers of financial instruments or to one or more financial instruments and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments.’
Article 2 of that directive provides:
‘1.   Member States shall prohibit any person referred to in the second subparagraph who possesses inside information from using that information by acquiring or disposing of, or by trying to acquire or dispose of, for his own account or for the account of a third party, either directly or indirectly, financial instruments to which that information relates.
The first subparagraph shall apply to any person who possesses that information:
(a)
by virtue of his membership of the administrative, management or supervisory bodies of the issuer; or
(b)
by virtue of his holding in the capital of the issuer; or
(c)
by virtue of his having access to the information through the exercise of his employment, profession or duties; or
(d)
by virtue of his criminal activities.
2.   Where the person referred to in paragraph 1 is a legal person, the prohibition laid down in that paragraph shall also apply to the natural persons who take part in the decision to carry out the transaction for the account of the legal person concerned.
3.   This Article shall not apply to transactions conducted in the discharge of an obligation that has become due to acquire or dispose of financial instruments where that obligation results from an agreement concluded before the person concerned possessed inside information.’
Article 6(1) and (2) of the same directive provides:
‘1.   Member States shall ensure that issuers of financial instruments inform the public as soon as possible of inside information which directly concerns the said issuers.
...
2.   An issuer may under his own responsibility delay the public disclosure of inside information, as referred to in paragraph 1, such as not to prejudice his legitimate interests provided that such omission would not be likely to mislead the public and provided that the issuer is able to ensure the confidentiality of that information. Member States may require that an issuer shall without delay inform the competent authority of the decision to delay the public disclosure of inside information.’
Directive 2003/124
According to recitals 1 and 3 in the preamble to Directive 2003/124:
‘(1)
Reasonable investors base their investment decisions on information already available to them, that is to say, on ex ante available information. Therefore, the question whether, in making an investment decision, a reasonable investor would be likely to take into account a particular piece of information should be appraised on the basis of the ex ante available information. Such an assessment has to take into consideration the anticipated impact of the information in light of the totality of the related issuer’s activity, the reliability of the source of information and any other market variables likely to affect the related financial instrument or derivative financial instrument related thereto in the given circumstances.
...
(3)
Legal certainty for market participants should be enhanced through a closer definition of two of the elements essential to the definition of inside information, namely the precise nature of that information and the significance of its potential effect on the prices of financial instruments or related derivative financial instruments.’
Article 1 of that same directive, entitled ‘Inside information’, provides:
‘1.   For the purposes of applying point 1 of Article 1 of Directive 2003/6/EC, information shall be deemed to be of a precise nature if it indicates 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 do so and if it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of financial instruments or related derivative financial instruments.
2.   For the purposes of applying point 1 of Article 1 of Directive 2003/6/EC, “information which, if it were made public, would be likely to have a significant effect on the prices of financial instruments or related derivative financial instruments” shall mean information a reasonable investor would be likely to use as part of the basis of his investment decisions.’
Article 3(1) of that directive contains a non-exhaustive list of situations which may relate to the legitimate interests of an issuer within the meaning of Article 6(2) of Directive 2003/6; they are: negotiations in course, or related elements, where the outcome or normal pattern of those negotiations would be likely to be affected by public disclosure, and also decisions taken or contracts made by the management body of an issuer which need the approval of another body of the issuer in order to become effective, where the organisation of such an issuer requires the separation between these bodies.
German law
Paragraph 13(1) of the Law on Securities Trading (Gesetz über den Wertpapierhandel), in its version of 9 September 1998 (BGBl. 1998 I, p. 2708), as amended by the Law on improvement of protection for investors (Gesetz zur Verbesserung des Anlegerschutzes) 28 October 2004 (BGBl. 2004 I, p. 2630) (‘the WpHG’), provides:
‘Inside information shall mean specific information concerning circumstances not made public which relate to one or more issuers of insider securities or to the insider securities themselves and which, if made public, are likely to have a significant effect on the stock-market and market price of those securities. Such likelihood exists if a reasonable investor would take account of that information in making his investment decision. Circumstances whose future occurrence may be considered sufficiently probable shall also be deemed to be circumstances within the meaning of the first sentence. …’
Article 6(1) and (2) of Directive 2003/6 was transposed into German law by Paragraph 15(1) and (3) of the WpHG. Under Paragraph 15(6), an issuer who infringes his obligations under Paragraph 15(1) to (4) becomes liable to compensate for the loss caused suffered to any other party under the conditions set out, inter alia, in Paragraph 37b of the WpHG.
The dispute in the main proceedings and the questions referred for a preliminary ruling
The order for reference indicates that, following general meeting on 6 April 2005, Mr Schrempp, Chairman of Daimler’s Board of Management, was thinking of tendering his resignation before the expiry of his mandate in 2008. On 17 May 2005, he discussed his intentions with the Chairman of the Supervisory Board, Mr Kopper. Between 1 June and 27 July 2005, other members of the Supervisory Board and the Board of Management were also informed of Mr Schrempp’s plans to resign.
As from 10 July 2005, Daimler began preparing a press release, an external statement and a letter to Daimler’s employees.
On 13 July 2005, an invitation was issued convening a meeting of the Presidential Committee of Daimler’s Supervisory Board (‘the Presidential Committee’) and the Supervisory Board on 27 and 28 July 2005, respectively; neither invitation mentioned a possible change of Chairman of the Board of Management.
On 18 July 2005, Messrs Schrempp and Kopper agreed to propose Mr Schrempp’s early departure and Mr Zetsche’s appointment as his successor at the Supervisory Board’s meeting on 28 July 2005.
At its meeting, which commenced at 17 hrs on 27 July 2005, the Presidential Committee decided that it would propose to the Supervisory Board, which was meeting the next day, that it approve said departure and said appointment.
At approximately 9.50 hrs on 28 July 2005, Daimler’s Supervisory Board decided that Mr Schrempp would step down at the end of the year and be replaced by Mr Zetsche.
An announcement of that decision was sent to the management of the stock exchanges and of the Bundesanstalt für Finanzdienstleistungsaufsicht (Federal Office for the Supervision of Financial Services) and was published in the disclosures database of the Deutsche Gesellschaft für Ad-hoc-Publizität (German ad hoc disclosure company).
Following that announcement, Daimler’s share price, which had already risen that day following publication of the 2005 second quarter results that morning, rose sharply.
Mr Geltl and a number of other investors had sold Daimler shares before that announcement. They brought an action against Daimler before the Landgericht Stuttgart (Regional Court, Stuttgart) seeking compensation for what they considered to be a late ad hoc announcement. That court asked the Oberlandesgericht Stuttgart (Higher Regional Court, Stuttgart) to rule on a number of questions in relation to those disputes in a test case (‘Musterverfahren’).
In its test decision of 22 April 2009, the Oberlandesgericht Stuttgart held that it could not be proven that, on 17 May 2005 or subsequently, there was inside information to the effect that Mr Schrempp would resign unilaterally, whether or not Daimler’s Supervisory Board approved. In that court’s view, the decisive price-relevant event is the Supervisory Board’s decision of 28 July 2005. That decision had become sufficiently likely after the Presidential Committee had decided, after 17 hrs on 27 July 2005, to propose to the Supervisory Board to adopt it. Therefore, there was inside information only as from that date. The Oberlandesgericht Stuttgart acknowledged that not all of the conditions for delaying the public disclosure of that information, as provided for in Paragraph 15(3) of the WpHG, were fulfilled, but held that the loss alleged by the plaintiffs would have occurred even if those conditions had been fulfilled.
On appeal, the referring court observes that the Oberlandesgericht Stuttgart did not consider whether the individual steps leading up to the decision of 28 July 2005 were such as to influence Daimler’s share price. On the other hand, in proceedings for the imposition of a fine relating to the same circumstances as those in the main proceedings in the present case, the Oberlandesgericht Frankfurt am Main (Higher Regional Court, Frankfurt am Main) considered that the combining of a number of independent circumstances into a single overall decision is contrary to the wording of the first sentence of Paragraph 13(1) of the WpHG and of Directives 2003/6 and 2003/124 and that, therefore, the disclosure obligation exists as soon as the internal process has led to a definite fact and a decision-maker of the undertaking in question has been notified.
In those circumstances, the Bundesgerichtshof (Federal Court of Justice) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
‘1.
For the purposes of applying point 1 of Article 1 of Directive 2003/6 and Article 1(1) of Directive 2003/124, is account to be taken, in the case of a protracted process intended, over the course of a number of intermediate steps, to bring about a particular circumstance or to generate a particular event, only of whether that future circumstance or future event is to be regarded as precise information within the meaning of those provisions of the directives, meaning that it must be examined whether that future circumstance or future event may reasonably be expected to occur, or, in the case of a protracted process of this kind, can intermediate steps which already exist or have already occurred and which are connected with bringing about the future circumstance or event also constitute precise information within the meaning of the aforementioned provisions of the directives?
2.
Does the expression “may reasonably be expected” within the meaning of Article 1(1) of Directive 2003/124 require that the probability be assessed as predominant or high, or does the reference to circumstances which may reasonably be expected to come into existence or events which may reasonably be expected to occur imply that the degree of probability depends on the extent of the effects on the issuer and that, where prices are highly likely to be affected, it is sufficient if the occurrence of the future circumstance or event is uncertain but not improbable?’
The questions referred for a preliminary ruling
As a preliminary point, it should be borne in mind that, in order to ensure the integrity of the financial markets in the European Union and investor confidence in those markets, Directive 2003/6 prohibits transactions undertaken in the circumstances described in Article 2 thereof and, under Article 6(1), requires issuers of financial instruments to disclose, as soon as possible, inside information which is of direct concern to them. Under Article 6(2), the disclosure of such information may be delayed, in certain circumstances, in order not to prejudice the issuer’s legitimate interests.
The definition of the notion of ‘inside information’ under point 1 of Article 1 of that directive comprises four essential elements. Firstly, it must be of a precise nature. Secondly, the information must not have been made public. Thirdly, it must relate, directly or indirectly, to one or more financial instruments or their issuers. Fourthly, it must be information which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments. The first and fourth elements are defined more specifically in Article 1(1) and (2) respectively of Directive 2003/124.
The questions referred by the referring court seek clarifications on the first of those elements, namely the precise nature of a piece of information.
The first question
By its first question, the referring court asks, in essence, whether point 1 of Article 1 of Directive 2003/6 and Article 1(1) of Directive 2003/124 must be interpreted as meaning that, in the case of a protracted process intended to bring about a particular circumstance or to generate a particular event, not only may that future circumstance or future event be regarded as precise information within the meaning of those provisions, but also the intermediate steps of that process which already exist or have already occurred and which are connected with bringing about the future circumstance or event.
Recital 3 in the preamble to Directive 2003/124 states that that directive aims to give a closer definition of the notion of ‘precise information’ used in Directive 2003/6 in order to enhance legal certainty for market participants.
According to Article 1(1) of Directive 2003/124, information is to be deemed to be of a precise nature if two cumulative conditions are satisfied. Firstly, the information must refer to 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 do so. Secondly, it must be specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of the financial instruments concerned or related derivative financial instruments.
Since the terms ‘set of circumstances’ and ‘event’ are not defined in that directive, it is appropriate to look at their ordinary meaning.
An intermediate step in a protracted process may in itself constitute a set of circumstances or an event in the meaning normally attributed to those terms.
That finding is supported by Article 3(1) of Directive 2003/124, which gives, by way of examples of inside information the disclosure of which may be delayed under Article 6(2) of Directive 2003/6, situations which are typical examples of intermediate steps in protracted processes, namely negotiations in course and decisions taken or contracts made by the management body of an issuer which need the approval of another body of the issuer in order to become effective.
Moreover, as is evident from recitals 2 and 12 in the preamble thereto, the purpose of Directive 2003/6 is to protect the integrity of the European Union financial markets and to enhance investor confidence in those markets. That confidence depends on, inter alia, investors being placed on an equal footing and protected against the improper use of insider information (see, to that effect, Case
C-45/08
Spector Photo Group and Van Raemdonck
[2009] ECR I-12073
, paragraph 47, and Case
C-445/09
IMC Securities
[2011] ECR I-5917
, paragraph 27).
In that regard, recital 24 in the preamble to that directive states that prompt and fair disclosure of information to the public enhances market integrity, whereas selective disclosure by issuers can lead to a loss of investor confidence in the integrity of financial markets.
An interpretation of the terms ’set of circumstances’ and ‘event’ which disregards the intermediate steps in a protracted process risks undermining the objectives as referred to in the two preceding paragraphs of this judgment. To rule out the possibility that information relating to such a step in a protracted process may be of a precise nature for the purposes of point 1 of Article 1 of Directive 2003/6 would remove the obligation, provided for in the first subparagraph of Article 6(1), to disclose that information, even if it were quite specific and even though the other elements making up inside information, as listed in paragraph 25 of this judgment, were also present.
In such a situation, certain parties who possessed inside information could be in an advantageous position vis-à-vis other investors and be able to profit from that information, to the detriment of those who are unaware of it (see, to that effect,
Spector Photo Group and Van Raemdonck
, paragraph 48).
The risk of such a situation occurring is all the greater given that it would be possible, in certain circumstances, to regard the outcome of a specific process as an intermediate step in another, larger process.
Consequently, information relating to an intermediate step which is part of a protracted process may be precise information. It should be noted that this interpretation does not hold true only for those steps which have already come into existence or have already occurred, but also concerns, under Article 1(1) of Directive 2003/124, steps which may reasonably be expected to come into existence or occur.
As is apparent from paragraph 29 of this judgment, the categorisation of information as precise must also satisfy the second condition laid down in that provision, that is to say, the information must be specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event in question on the prices of the financial instruments concerned.
The answer to the first question is therefore that point 1 of Article 1 of Directive 2003/6 and Article 1(1) of Directive 2003/124 must be interpreted as meaning that, in the case of a protracted process intended to bring about a particular circumstance or to generate a particular event, not only may that future circumstance or future event be regarded as precise information within the meaning of those provisions, but also the intermediate steps of that process which are connected with bringing about that future circumstance or event.
The second question
By its second question, the referring court asks, in essence, whether Article 1(1) of Directive 2003/124 must be interpreted as meaning that the notion of ‘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 do so’ refers only to circumstances or events the occurrence of which may be considered to be preponderant or highly probable, or whether that notion implies that the magnitude of the effect of that set of circumstances or that event on the prices of the financial instruments concerned must be taken into consideration.
There is a certain divergence between the various language versions of that provision. Thus, some of the versions, including the French, Italian and Dutch texts, use terms equating to ‘may reasonably be thought’, whilst other versions, including the Danish, Greek, English and Swedish texts, employ terms equating to ‘may reasonably be expected’. The Spanish and Portuguese versions refer to ‘a set of circumstances which may reasonably exist’ and ‘a reasonably foreseeable set of circumstances or event’. Lastly, the German text uses terms equating to ‘with a sufficient degree of probability’ (mit hinreichender Wahrscheinlichkeit).
According to settled case-law, firstly, the wording used in one language version of a provision of European Union law cannot serve as the sole basis for the interpretation of that provision, or be made to override the other language versions in that regard. Secondly, the various language versions of a text of European Union law must be given a uniform interpretation and hence, in the case of divergence between the language versions, the provision in question must be interpreted by reference to the purpose and general scheme of the rules of which it forms a part (see Case
C-215/10
Pacific World and FDD International
[2011] ECR I-7255
, paragraph 48 and the case-law cited).
Apart from the German version, all the other language versions of Article 1(1) of Directive 2003/124 existing at the time it was adopted use the adverb ‘reasonably’. By using that term, the European Union legislature introduced a criterion based on rules drawn from the common experience in order to determine whether or not future circumstances and events come within the scope of that provision.
In order to determine whether it is reasonable to think that a set of circumstances will come into existence or that an event will occur, an assessment must be made on a case-by-case basis of the factors existing at the relevant time.
Consequently, Article 1(1) of Directive 2003/124, in using the terms ‘may reasonably be expected’, cannot be interpreted as requiring that proof be made out of a high probability of the circumstances or events in question coming into existence or occurring.
To restrict the scope of point 1 of Article 1 of Directive 2003/6 and Article 1(1) of Directive 2003/124 in respect of future circumstances and events to such a degree of probability would undermine the objectives referred to in paragraph 33 of this judgment, namely to protect the integrity of the European Union financial markets and to enhance investor confidence in those markets. In such a scenario, insiders would be able to derive undue benefit from certain information which, under such a restrictive interpretation, would be held not to be precise, to the detriment of others who are unaware of it.
However, in order to ensure legal certainty for market participants, including issuers, as referred to in recital 3 in the preamble to Directive 2003/124, precise information is not to be considered as including information concerning circumstances and events the occurrence of which is implausible. Otherwise, issuers could believe that they are obliged to disclose information which is not specific or is unlikely to influence the prices of their financial instruments.
It follows that, in using the terms ‘may reasonably be expected’, Article 1(1) of Directive 2003/124 refers to future circumstances or events from which it appears, on the basis of an overall assessment of the factors existing at the relevant time, that there is a realistic prospect that they will come into existence or occur.
The question whether the required probability of occurrence of a set of circumstances or an event may vary depending on the magnitude of their effect on the prices of the financial instruments concerned must be answered in the negative.
In the first place, there is nothing to infer such an interpretation of the meaning of the terms ‘may reasonably be expected’ from any of the language versions referred to in paragraph 42 of this judgment.
Secondly, an interpretation to the effect that, the greater the magnitude of the possible effect of a future event on the prices of the financial instruments concerned may be, the lower the degree of probability required in order for the information in question to be held to be precise, would imply that the two elements required for information to be inside information, set out in Article 1(1) and (2) of Directive 2003/124 respectively, namely that the information must be precise and must be likely to have a significant effect on the prices of the financial instruments concerned, are co-dependent.
The specific criteria set out in those two paragraphs are minimum conditions which must each be satisfied in order for information to be held to be ‘inside’ information within the meaning of point 1 of Article 1 of Directive 2003/6.
As observed by the United Kingdom Government in its observations submitted to the Court, the possibility cannot be ruled out that information relating to an event which is unlikely to occur may have a significant effect on the price of the relevant issuer’s securities in that the consequences of that event might have particularly strong consequences for the issuer. That does not necessarily mean that the event will occur.
It is true that, as is apparent from recital 1 in the preamble to Directive 2003/124, reasonable investors base their investment decisions on all ex ante available information. They must therefore take into consideration not only the ‘anticipated impact’ of an event on the issuer, but also the degree of probability that the event will occur. Such considerations, however, go to determining whether information is liable to have a significant effect on the prices of the issuer’s financial instruments.
In the light of the foregoing considerations, the answer to the second question is that Article 1(1) of Directive 2003/124 must be interpreted as meaning that the notion of ‘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 do so’ refers to future circumstances or events from which it appears, on the basis of an overall assessment of the factors existing at the relevant time, that there is a realistic prospect that they will come into existence or occur. However, that notion should not be interpreted as meaning that the magnitude of the effect of that set of circumstances or that event on the prices of the financial instruments concerned must be taken into consideration.
Costs
Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

On those grounds, the Court (Second Chamber) hereby rules:

1.
Point 1 of Article 1 of Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse) and Article 1(1) of Commission Directive 2003/124/EC of 22 December 2003 implementing Directive 2003/6 as regards the definition and public disclosure of inside information and the definition of market manipulation must be interpreted as meaning that, in the case of a protracted process intended to bring about a particular circumstance or to generate a particular event, not only may that future circumstance or future event be regarded as precise information within the meaning of those provisions, but also the intermediate steps of that process which are connected with bringing about that future circumstance or event.

2.
Article 1(1) of Directive 2003/124 must be interpreted as meaning that the notion of ‘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 do so’ refers to future circumstances or events from which it appears, on the basis of an overall assessment of the factors existing at the relevant time, that there is a realistic prospect that they will come into existence or occur. However, that notion should not be interpreted as meaning that the magnitude of the effect of that set of circumstances or that event on the prices of the financial instruments concerned must be taken into consideration.

[Signatures]
(
*1
)	Language of the case: German.