CELEX: 51987PC0111
Language: en
Date: 1987-05-21
Title: Proposal for a COUNCIL DIRECTIVE coordinating regulations on insider trading (presented by Commission)

ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (87) 111
Vol. 1987/0049
 ---pagebreak--- Disclaimer
Conformément au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983 concernant
l'ouverture au public des archives historiques de la Communauté économique européenne et de
la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, p. 1) modifié en dernier
lieu par le règlement (UE) 2015/496 du Conseil du 17 mars 2015 (JO L79 du 25. 3.2015, p. 1), ce
dossier est ouvert au public. Le cas échéant, les documents classifiés présents dans ce dossier
ont été déclassifiés conformément à l'article 5 dudit règlement ou sont considérés déclassifiés
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Commission du 13 mars 2015 concernant les règles de sécurité aux fins de la protection des
informations classifiées de l'Union européenne.
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 concerning
the opening to the public of the historical archives of the European Economic Community and the
European Atomic Energy Community (OJ L 43, 15.2.1983, p. 1), as last amended by Council
Regulation (EU) 2015/496 of 17 March 2015 (OJ L 79, 27.3.2015, p. 1), this file is open to the
public. Where necessary, classified documents in this file have been declassified in conformity
with Article 5 of the aforementioned regulation or are considered declassified in conformity with
Articles (26.3) and 59(2) of the Commission Decision (EU, Euratom) 2015/444 of 13 March 2015
on the security rules for protecting EU classified information.
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom 1. Februar
1983 über die Freigabe der historischen Archive der Europäischen Wirtschaftsgemeinschaft und
der Europäischen Atomgemeinschaft (ABI. L 43 vom 15.2.1983, S. 1), zuletzt geändert durch die
Verordnung (EU) Nr. 2015/496 vom 17. März 2015 (ABI. L 79 vom 25.3.2015, S. 1), ist dieser Akt
der Öffentlichkeit zugänglich. Soweit erforderlich, wurden die Verschlusssachen in diesem Akt in
Übereinstimmung mit Artikel 5 der genannten Verordnung freigegeben; beziehungsweise werden
sie auf Grundlage von Artikel 26(3) und 59(2) der Entscheidung der Kommission (EU, Euratom)
2015/444    vom   13.   März   2015   über die   Sicherheitsvorschriften für den Schutz von  EU-
Verschlusssachen als herabgestuft angesehen.
 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                                 COM(87 ) 111 final
                                                Brussels , ^1 May 1987
                             Proposai for a
                           COUNCIL    DIRECTIVE
              coordinating    regulations on insider trading
 C0HC87 ) 111 final
 ---pagebreak---                                            Λ
                               PROPOSAL FOR A DIRECTIVE
                            COORDINATING THE REGULATIONS ON
                                    INSIDER TRADING
                                Explanatory mémorandum
I.    INTRODUCTION
1.    Securities markets have an       important  role to play   in a modern market
economy .     Their  main function    is to make available to those       involved  in
business activity the financial resources they require .           Securities markets
therefore constitute a source of finance which is essential for maintaining
and ,    possibly ,   restoring the balance between companies' equity and loan
capital .    They therefore act as a regulating mechanism which is essential to
the smooth functioning of a modern market economy .        In a continually changing
economy ,    such as that of the Community ,    the role of securities markets ,   and
more particularly of secondary markets , is bound to increase , since the growth
of that economy will require more and more investment .
In order to be able to carry out their role as provider of capital to the
full ,    the secondary securities markets must ensure at all times that there is
as broad a match as possible between supply and demand .          The extent of that
match and therefore the depth and liquidity of those markets depend ,          amongst
other things ,     on the assurance given to investors that prices quoted reflect
all the facts and that therefore all possible measures have been taken to
 ---pagebreak---                                           - 2 -
ensure equality of opportunity for all investors .        In other words ,   the proper
operation of securities markets depends on the degree of confidence they
inspire in investors .
Consequently ,  insider trading ,     which enables persons with inside information
to make gains at the expense of other investors ,         constitutes a threat to the
proper operation    of the    securities markets ,      since it totally undermines
equality of opportunity for investors and therefore also their confidence in
those markets .  If the proper operation of those markets is to be safeguarded ,
it is therefore essential to eliminate that threat through measures designed
to prevent the use of inside information in securities transactions .
2.   With a view to ensuring the proper operation of the securities markets ,
some Member States have introduced rules and regulations governing insider
trading and others plan to do so .
At the present time four of the Member States have such rules and regulations :
Denmark , France and the United Kingdom have adopted legislation penalizing the
exploitation of inside information ,       while the Federal Republic of Germany has
introduced rules under which market operators          voluntarily undertake not to
exploit inside information at their disposal . However , breaches of those rules
are not penalized .   Belgium , Ireland and the Netherlands are in the process of
finalizing   legislation   on  insider     trading .  In   the   other   Member  States ,
however ,  no specific rules and regulations have been introduced to deal with
the problems of insider trading ,      except for a code of conduct drawn up by the
Amsterdam Stock Exchange in the Netherlands .
This  review of   the  situation   in  the   various Member    States  thus  shows  that
there are very marked differences between the rules and regulations on insider
trading .
 ---pagebreak---                                           - 3 -
It would therefore seem necessary for rules and regulations to be coordinated
at Community level in order to make the safeguards offered investors by the
different securities markets more uniform and thus to contribute to greater
interpenetration of those markets .         In other words ,      such coordination is
necessary if a genuine European securities market which is both efficient and
fair is   to be created .     The present proposal       therefore     represents a step
towards the setting-up of a European capital market .
3.   The proposal also constitutes an essential           supplement to the following
Directives   already   adopted     or  being    considered   by    the   Council   in  the
securities field :
- Council Directive 79 / 279 / EEC of 5 March 1979 coordinating the conditions for
the admission of securities to official stock exchange listing ;
- Council Directive 80 / 390 / EEC of 17 March 1980 coordinating the requirements
for the drawing-up, scrutiny and distribution of the listing particulars to be
                                                                                         2
published for the admission of securities to official stock exchange listing ;
- Council   Directive 82 / 121 / EEC  of   15 February 1982     on   information    to  be
published on a     regular basis by      companies   the   shares of which      have been
admitted to official stock-exchange listing ;
- the proposal    for a   Directive on     information to be published when major
holdings in the capital of a listed company are acquired or disposed of .^
loj No L 66, 16.3.1979 .
^0J No L 100, 17.4.1980.
70J No L 48 , 20.2.1982 .
  0J No C 351 , 31.12.1985 .
 ---pagebreak---                                           - 4 -
Like the above Directives , the present proposal also aims :
-    to provide effective protection for investors on securities markets ;
-    to ensure proper operation of securities markets throughout the Community ;
-    to promote ,   at  Community   level ,    greater  interpenetration of national
securities markets .
II .   COMMENTARY
1.    Definition of insiders
With regard to the definition of insiders ,        there is a choice between a narrow
approach and a broader approach .
The narrow approach would have been to limit the coverage of the Directive to
" primary insiders ", that is to say those who by their profession or occupation
are in a fiduciary relationship with or have a duty of confidentiality towards
the company whose shares are in question .
It has become clear from recent cases on international securities markets that
such an approach would be too limited .         There is a significant risk in modern
deregulated markets ,     particularly where financial institutions are no longer
specialised ,     that  individuals ,   whether    acting   on  their   own  account or
otherwise ,    could make a practice of procuring privileged information from the
" primary insiders " and indeed they are or will          be the main beneficiaries .
Accordingly ,    if confidence in securities markets is to be maintained ,         it is
also necessary to cover those persons - often described as " tippees " - who
obtain such privileged information from the primary insiders and use it to
their own advantage .
The    Directive   accordingly   adopts    the   broader   approach   and   covers  both
categories of potential insider .      Articles 1 and 2 of the Directive define the
prohibitions to be imposed on primary insiders , i.e. persons who , by reason of
their professional position ,     are likely to have access to inside information .
Article 3 defines the prohibitions to be imposed on secondary insiders ,             who
obtain their inside information from persons in the first category .
 ---pagebreak---                                              - 5 -
2.     Definition of inside information
Inside information       is defined    in Article 6 .       For information to be inside
information , the following conditions must be met :
- the information must be unknown to the public , i.e. not yet published ;
- it must also be of a sufficiently specific nature .                A simple rumour cannot
therefore be regarded as inside information ;
- it must      relate to    one or  more   issuers    of  securities    or to   one or    more
securities ; this condition therefore covers information concerning an issuer ,
whether originating from within the issuer               ( for example ,    an increase in
profits ) or outside it ( for example , a bid to take it over launched by another
company ).     It also covers information on the situation or prospects of one or
more securities and information which is likely to influence the market as
such ( for example , the decision of a central bank to alter the discount rate );
- the fourth and final        condition is that the        information must be      likely to
have a material effect on the price of the security or securities in question .
All information unknown to the public              is not    therefore necessarily inside
information .      If such were the case , the managers or directors or even most of
the employees of a company would never be able to carry out transactions in
the securities of their companies ,           since they always have information which
has not been published .
3 . Prohibitions imposed on insiders
The prohibitions        which  the  Directive     imposes on      insiders  are  set   out  in
Articles 1 to 3 of the Directive .
 ( a ) First ,   the primary insiders defined in Article 1 ,             who acquire inside
       information    in  the   exercise    of   their   profession     or  duties    must  be
       prohibited from taking advantage of such              information to buy or sell ,
       either directly     or through    the medium      of another person ,       securities
       admitted to trading on the stock exchange market .
 ---pagebreak---                                            - 6 -
      This prohibition therefore applies where :
      - the   insider   has  acquired   inside   information   in the   exercise of    his
         profession or duties ;
      - the insider carries out a transaction in a security admitted to trading
         on the stock exchange market ,      whether on the official market or on a
         parallel   stock market    such as the " Second Marche "      in France or the
         Unlisted Securities Market in the United Kingdom .          It should be noted
         that the transaction need not necessarily be carried out on the stock
         exchange market itself . Off-market transactions are also covered if they
         are  carried out   through a professional intermediary         such as a bank ,
         stockbroker or dealer ;
      - the insider takes advantage of the inside information ,             i.e.    if his
         decision to buy or sell securities has been taken in the light of that
         information .   If a transaction is not triggered by inside information ,
         therefore , it is not covered by the prohibition .
( b ) Second ,   the insiders defined in Article 1 must also be prohibited from
      disclosing    inside  information at     their disposal .    Insiders should not
      therefore be able to communicate such information to a third party unless
      it is necessary or appropriate for them to do so in the normal course of
      exercising their profession or duties .
( c ) Third ,   a  ban must   be   imposed on what     is   commonly   called  " tipping ".
      Insiders in possession of inside information may not use such information
      to recommend a third party to buy or sell securities admitted to trading
      on the stock exchange market .
( d ) The secondary insiders ,      defined in Article 3 ,     are similarly prohibited
      either from knowingly taking advantage of inside information disclosed to
      them by primary insiders to buy or sell ,         either directly or indirectly ,
      securities admitted to trading on the stock exchange market .               They are
      further prohibited from disclosing such information to third parties or
      from using that information to recommend a third party to buy or sell
      securities .
 ---pagebreak---                                              - 7 -
4 . The rules governing territorial application
Articles 1 and 2 of the proposal for a Directive determine which Member State
is competent to act in the event of insider trading .            The rules on territorial
application in those Articles are as follows :
- Article 1 stipulates that ,       in the event of a purchase or sale of securities
   by an insider ,     the competent Member State is that on whose territory the
   purchase or sate took place . Where such a purchase or sale is carried out on
   the stock exchange market ,        the competent Member State is clearly that in
   which the stock exchange in question is located or operates .                 Territorial
   application is a much more complex matter where a purchase or sale is
   carried out outside the stock exchange market ,           since there is no real link
   with a given country . The transaction can be regarded as having been carried
   out on the territory of the Member State in which the insider is resident ;
   however , it can also be regarded as having been carried out on the territory
   of the Member State in which the other party to the transaction is resident .
   This   second   criterion   has   been   adopted   for the purpose of the proposed
   Directive because the other party to a transaction carried out by an insider
   is a victim of that insider , and it is the victim that must be protected ( by
   giving jurisdiction where necessary to the courts of the Member State in
   which that victim is resident ).
- The question of competence in the case of breaches of the two other bans
   laid    down  in   Article 2    does    not  raise   any   problems .    If   an   insider
   communicates inside information to a third party or if he recommends a third
   party ,   on the basis of such information ,         to buy or sell securities ,       the
   Member State in which the insider is resident is clearly competent since the
   offence has been committed by that insider .
5 . Publication of inside information
Prompt    publication of     inside    information   is   the best   means of preventing
insider trading ,      since it reduces to a minimum the period during which such
information is inside information because it is known only to a small number
of persons .
The proposed      Directive accordingly contains a provision             ( Article 7 )  which
 requires    companies whose    securities     are admitted to trading on the           stock
 exchange market      to  inform   the public      immediately of    any circumstance      or
decision which would be likely to influence the price of those securities .
 ---pagebreak---                                               - 8 -
However ,   if such information cannot be published immediately since it would
harm the legitimate interests of the company ,               that company must immediately
inform the competent authorities ,            who may relieve it of the obligation to
publish it immediately .
The Directive of 5 March 1979 coordinating the conditions for the admission of
securities    to   official    stock     exchange    listing     already    imposes     on   listed
companies an obligation to provide such information .
Point 5(a ) of Schedule C annexed to that Directive stipulates that :
" The company must inform the public as soon as possible of any major new
developments in its sphere of activity which are not public                        knowledge and
which may ,     by virtue     of their       effect on     its assets and        liabilities or
financial    position    or   on   the     general   course    of   its   business ,       lead   to
substantial movements in the prices of its shares .
The   competent    authorities      may ,    however ,     exempt     the  company      from    this
requirement ,     if the    disclosure of        particular     information     is    such    as to
prejudice the legitimate interests of the company ."
However ,   this provision of the Directive on the conditions for the admission
of securities to stock exchange listing applies only to issuers of securities
officially    listed   on a     stock     exchange .     For  the    purpose   of    the    present
legislation ,     therefore ,     it must be supplemented by a similar but                     wider
provision which also covers issuers whose securities are admitted to trading
on a market other than the official one ,               for example the " Second Marche" in
France ,   the " Mercato Ristretto " in Italy or the Unlisted Securities Market in
the United Kingdom .
6 . Monitoring of the application of the provisions of the proposed Directive
It   is   essential    that    supervisory      authorities      be    designated     to    monitor
application of all rules and regulations designed to combat insider trading
effectively .     Without such authorities ,          it would not be possible to detect
insider trading and in particular to identify those responsible .
This is why the proposal for a Directive stipulates that each Member State
must designate the authority or authorities competent to oversee application
of the provisions of the proposal .           In order to be able to carry out that task
 ---pagebreak---                                           - 9 -
with maximum efficiency ,      those authorities should be given all the powers
necessary for the exercise of their duties .               Thus ,     they should have
sufficiently wide investigative powers to be able to ascertain from financial
intermediaries their clients' true identities .
Also with a view to ensuring the proper application of the provisions of the
proposed Directive,      the proposal introduces the principle of cooperation
between  the competent     authorities in      the various    Member States .     As the
competence of the national authorities and , in particular , their investigative
powers are limited territorially ,         such cooperation may be essential for
tracing a string of transactions and identifying ,                   in the event of
cross-frontier transactions , the insiders ultimately responsible .
Cooperation between supervisory authorities should normally take the form of
information exchanges . The proposal for a Directive therefore provides for the
authorities    in the Member States     to exchange     any information     required for
carrying out their duties . In order to ensure that information communicated in
this way remains confidential , provision has been made for it to be covered by
the obligation of professional secrecy .
Provision has also been made for the responsibilities of the Contact Committee
set  up by    the  Directive   coordinating the conditions        for the admission of
securities to official stock exchange listing to be extended to include the
field covered by the present proposal for a Directive .           The Contact Committee
will  have   the task   of   facilitating    the harmonized     implementation of     the
Directive 's   provisions   through   the   exchange   of  views .     It  will  also  be
responsible for advising the Commission ,         if necessary ,    on any additions or
amendments to the      Directive .   Finally ,    by providing a      forum for   regular
contacts between the authorities in the different Member States this Committee
should also promote effective cooperation between those authorities ,               which
should help in combating insider trading .
 ---pagebreak---                          PROPOSAL FOR A COUNCIL DIRECTIVE
                               COORDINATING REGULATIONS
                                  ON INSIDER TRADING
      THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
      Having   regard   to    the   Treaty  establishing    the   European  Economic
Community , and in particular Article 54 thereof ,
      Having regard to the proposal from the Commission ,
      Having regard to the opinion of the European Parliament ,
      Having regard to the opinion of the Economic and Social Committee ,
      Whereas Article 54 ( 3 ) Cg ) provides that the Council shall coordinate to
the necessary extent the safeguards which , for the protection of the interests
of members and others ,     are required by Member States of companies or firms
within the meaning of the second paragraph of Article 58 with a view to making
such safeguards equivalent throughout the Community ;
      Whereas   the   secondary    market  in   transferable   securities  plays  an
important role in the    financing of undertakings ;
      Whereas , for it to be able to play that role effectively , every possible
measure should be taken to ensure that that market operates smoothly ;
      Whereas the smooth operation of the secondary market depends to a large
extent on the confidence it inspires in investors ;
      Whereas   one of   the   factors  on  which such   confidence depends   is the
assurance afforded to investors that they are placed on an equal footing ;
 ---pagebreak---                                        - 2 -
      Whereas insider trading ,   by benefiting certain investors at the expense
of others ,  is Likely to undermine that confidence and may therefore prejudice
the smooth operation of the secondary market in transferable securities ;
      Whereas it is therefore necessary to take all appropriate measures to
combat insider trading ;
      Whereas    in  most Member   States  there  are   no rules  or regulations
prohibiting insider trading ;    whereas the rules or regulations that do exist
differ appreciably between Member States ;
      Whereas it is therefore necessary to adopt coordinated Community rules
in this field ;
      Whereas   such  coordinated  rules  also have   the advantage of helping ,
through cooperation between the competent authorities , to combat transfrontier
insider trading more effectively ,
HAS ADOPTED THIS DIRECTIVE :
 ---pagebreak---                                          - 3 -
                                      Artide 1
1.     Member States shall prohibit any person who ,         in the exercise of his
profession or duties ,    acquires inside information as defined in Article 6 from
taking advantage of that information to buy or sell on their territory ,           either
directly or through another person , transferable securities admitted to trading
on their stock exchange markets .
       Where the purchase or sale of transferable securities is carried out on
a stock exchange market , it shall be deemed to be carried out on the territory
of the Member State in which the stock exchange in question is situated or
operates .
       Where the purchase or sale of transferable securities is carried out
outside a stock exchange market ,     it shall be deemed to be carried out on the
territory of the Member State in which the counterpart of the person referred
to in the first subparagraph is resident .
2.     The prohibition laid down in paragraph 1 shall not apply to transferable
securities   bought   or   sold  outside   a   stock  exchange   market   without     the
involvement of a professional intermediary .
                                       Article 2
       Member  States    shall  prohibit   any   person  who  is   resident   on   their
territory   and  who   acquires   inside    information   in   the   exercise   of   his
profession or duties from :
- disclosing that inside information to a third party unless such disclosure
is made in the normal course of exercising his profession or duties ;
- using that inside information to recommend a third party to buy or                sell
transferable securities admitted to trading on their stock exchange markets .
 ---pagebreak---                                       - 4 -
                                     Article 3
1.    Member States shall impose the prohibition provided for in Article 1 in
accordance with   the terms   referred to   therein also on any person who  has
knowingly obtained inside    information from a person who has acquired that
information in the exercise of his profession or duties .
2.    Member States shall prohibit any person referred to in paragraph 1 :
- from disclosing the inside information to a third party ;
- from using that inside information to recommend a third party to buy or sell
transferable securities admitted to trading on their stock exchange markets .
                                     Article 4
      Member States may lay down more stringent rules than those contained in
this Directive provided that they are non-di scriminatory .
                                     Article 5
       For the purposes of this Directive transferable securities shall include
not only securities usually traded on the stock exchange market such as shares
and debt securities but also traded options relating to such securities .
 ---pagebreak---                                             - 5 -
                                          Artide 6
       For the purposes of this Directive ,           inside information is information
unknown to the public of a specific nature and relating to one or more issuers
of transferable securities ,       or to one or more transferable securities , which ,
if it were published ,     would be likely to have a material effect on the price
of the transferable security or transferable securities in question .
                                          Article 7
1.     Issuers whose transferable securities are admitted to official listing
in one or more Member States or are traded there on another stock exchange
market   shall    immediately   inform    the  public     in that   Member State   or those
Member States of any circumstance or decision which would be likely to have a
material effect on the price of such transferable securities .
2.     Where   an   issuer   is   unable    to   inform     the  public   immediately  of  a
circumstance     or decision    as referred     to in    paragraph 1     because disclosure
               »
would prejudice     its  legitimate     interests ,     it shall immediately inform the
competent authorities thereof ,        who may relieve it of the obligation provided
for in paragraph 1 .
                                          Article 8
1.     Member States shall designate the authority or authorities competent to
ensure that the provisions adopted pursuant to this                 Directive are applied .
They shall inform the Commission accordingly ,             indicating , if appropriate , how
duties have been allocated .
2.     The competent authorities shall be given all such supervisory powers as
may be necessary for the exercise of their duties .
 ---pagebreak---                                            - 6 -
3.     The competent authorities in the Member States shall cooperate wherever
necessary for the purpose of carrying out their duties and shall exchange any
information required for that purpose .
                                        Article 9
1.     Member States     shall   provide    that  all   persons  employed   or   formerly
employed by the competent authorities referred to in Article 8 shall be bound
by professional secrecy .      Information covered by professional secrecy may not
be divulged to any person or authority except by virtue of provisions laid
down by law .
2.     Paragraph    1  shall not ,    however ,    preclude exchanges    of  information
between the various Member States by the authorities referred to in Article 8
as provided for in this Directive . Information thus exchanged shall be covered
by the obligation of professional secrecy to which the persons employed or
formerly employed by the competent authorities receiving the information are
subject .
3.     Without prejudice to cases falling under criminal law ,          the authorities
referred to in Article 8 which receive information may use it only for the
exercise of their duties and in connection with administrative or judicial
proceedings specifically relating to the exercise of those duties .
                                        Article 10
       The    Contact     Committee      set     up    by    Article 20     of    Council
Directive 79 / 279 / EEC of  5 March     1979 coordinating     the conditions for the
                                                                     1
admission of securities to official stock exchange listing              shall also have
as its function :
1
   0J N° L 66, 16.3.1979, p. 21
 ---pagebreak---                                               - 7 -
( a ) to   facilitate   the  harmonized      implementation of      this   Directive through
      regular consultations on any          practical problems       which arise    from its
      application and on which exchanges of view are deemed useful ;
( b ) to advise     the   Commission ,    on   any   or  amendments    to be made to this
      Di rective .
                                           Article 11
         Member    States   shall     determine    the    penalties    to   be  applied   for
infringement of the measures taken pursuant to this Directive .
                                           Article 12
1.       Member   States shall     take the    measures necessary      to comply    with this
Directive not later than         31 December 1990 .        They shall forthwith inform the
Commission thereof .
2.       Member States     shall  communicate     to   the   Commission   the  provisions  of
national law which they adopt in the field governed by this Directive .
                                           Article 13
                                     Д.
         This Directive is addressed to the Member States .
Done at                                                      For the Council