When I hear the term “insider trading,” I tend to think of stories that make the headlines: Enron, Martha Stewart, and SAC Group. But what if you’re working for a company listed on the stock market, and need to speak to someone – say, your company’s lawyer – about an upcoming merger, profit warning, or mass redundancy?
It is not unusual for a public company to disclose important market moving information – such as advance warnings of earnings results – to analysts, lawyers, or selected investors before making the same information available to the general public.
Market moving information is a term used in stock market investing, defined as information that would cause any reasonable investor to make a buy or sell decision.
In regulatory parlance, when a public company reveals market moving information to a select group of people before it discloses that information to all investors at the same time, this is known as selective disclosure, or “wall crossing”. The problem with selective disclosure is that it creates an uneven playing field for investors, giving some people the opportunity to profit from market moving information before others.
Companies trading on the London Stock Exchange’s Alternative Investment Market are no longer exempt from publishing details of significant shareholders.
It is widely accepted that London is the money laundering capital of the world, with the property market being the primary avenue for the laundering of £100 billion ($128b USD) of illicit money each year (The Guardian, 2016).
To combat money laundering, tax evasion, terrorism financing, and fraud, both national and international organisations have introduced tougher, more wide-reaching legislation over the last few years. One such statute came into full effect this week here in the United Kingdom: Directive (EU) 2015/849, or the fourth anti-money laundering directive (“AML4”).
Breaking it down
Complementary to the AML4 legislation is the Persons with Significant Control (PSC) regime. The new law requires all companies – private and public – to keep a recorded register of the persons (including legal entities) who can control or otherwise influence a company. A PSC, popularly referred to as “beneficial owners,” is someone with more than a 25 per cent holding of the shares in a company.
The rationale is that making public this information will prevent fraud and tax evasion through the use of overseas holding structures, which often mask the true ownership of a company or the property it owns.
On Monday evening, I attended a lecture on the potential impact of Brexit on the UK financial services sector (“Report,” link). The Report was produced by Oliver Wyman and commissioned by TheCityUK. The presentation covered the current state of play of financial services in the UK, different scenarios for single market access, and some key recommendations for businesses and professional advisers.
Current state of play
- The UK financial services sector earns approximately £190-205BN in revenues, and of this, up to £50BN is directly related to European Union activity. (Domestic business and other “Rest of World” interactions were not considered).
- Together with the 1.1 million people working in financial services around the country, the sector generates an estimated £60-67BN of taxes each year, and contributes a trade surplus of approximately £58BN to the UK’s balance of payment.
The five important features of a successful future relationship between the UK and EU will require the UK to (as recommended by Oliver Wyman): adhere to global norms, retain current access to international markets, maintain/create equivalence and grandfathering, implement orderly transition arrangements, and maintain ongoing regulatory collaboration.