CMC 7 CMC 7 Providing Inside Information
CMC 7-1 Article 59 of the Markets Law1. Article 59 prohibits two further types of conduct by an
Insiderrelating to Inside Information, i.e:(a) disclosure of Inside Informationto another person (other than in the necessary course of business); and(b) procuring another person to deal in Investmentsor related investments in which the Insiderhas Inside Information.2. The relevant definitions of:(b) " Investment" and "related investment" are set out at CMC chapter 1 paragraphs 12 to 14.
CMC 7-2 Disclosure of Inside Information3. Article 59(1) of the Law provides that:
An insider shall not….
other than in the necessary course of business…..
disclose inside information to another person.
Disclosure "in the necessary course of business"4. Article 59(1) does not prohibit the disclosure of
Inside Informationby an Insiderto another person if the disclosure is made "in the necessary course of business".5. The DFSAwould ordinarily consider the following disclosures of Inside Informationmade for regulatory purposes to be in the necessary course of business:(a) disclosure of Inside Informationwhich is required or permitted under the Markets Law;(b) disclosure of Inside Informationto the DFSAfor the purpose of fulfilling a legal or regulatory obligation or otherwise to assist the DFSAto perform its functions; or(c) disclosure of Inside Informationto another regulatory authority for the purpose of fulfilling a legal or regulatory obligation or otherwise for the purpose of assisting that regulatory authority to perform its functions.6. In other cases, the DFSAis likely to take into account the following factors in determining whether or not the disclosure was made in the necessary course of business:(a) whether the disclosure is permitted by DFSARules, the rules of the relevant market or regulatory requirements relating to a takeover;(b) whether the disclosure is accompanied by the imposition of confidentiality requirements upon the person to whom the disclosure is made and is:(i) reasonable and is to enable a person to perform the proper functions of his employment, profession or duties;(ii) reasonable and is (for example, to a professional adviser) to facilitate, or seek advice about, a transaction or takeover bid;(iii) reasonable and is for the purpose of facilitating any commercial, financial or investment transaction (including prospective underwriters or placees of Investments);(iv) reasonable and is for the purpose of obtaining a commitment or expression of support in relation to a takeover offer; or(v) in fulfilment of a legal obligation; or(c) whether:(i) the information disclosed is Trading Information;(ii) the disclosure is by a person, A, only to the extent necessary, and solely in order, to offer to dispose of the Investment to, or acquire the Investment from, the person receiving the information; and(iii) it is reasonable for A to make the disclosure to enable him to perform the proper functions of his employment, profession or duties.
Dealing not required7. A person may contravene Article 59(1) by disclosing
Inside Informationto another person even though the recipient does not deal on the basis of that information. That is, it is sufficient that the Inside Informationis disclosed to another person, other than in the necessary course of business, without the need to show that any harm was caused.
Examples of improper disclosure of Inside Information8. The following are specific examples of conduct that, in the DFSA's view, may contravene Article 59(1);(a) A, a director of a company (a
Reporting Entity) has lunch with a friend, B, who has no connection with the company or its advisers. A tells B that his company has received a takeover offer that is at a premium to the current share price at which it is trading;(b) B is the CEO of a company (a Reporting Entity) that is about to release its annual financial report. The report will disclose an outstanding claim that will have a significant impact on the company's financial results. B passes the information on to family members (who have no role in the company);(c) an officer or employee of an Issuerselectively briefs analysts about developments relating to the Issuer that have not yet been disclosed to the market; and(d) the chairman of a Reporting Entityannounces his resignation to a journalist before this information has been disclosed to the market as a whole.
CMC 7-3 Procuring Another Person to Deal1. Article 59(2) of the Law provides that:
shall not procure another person to deal in the Investments or related investments………..
in which the insider has inside information.
Meaning of "procure"2. Article 59(3) of the Law provides that the term "procure" includes where a person induces or encourages another person by direct or indirect means.
Examples of procuring another person to deal3. The following are specific examples of conduct that, in the DFSA's view, may contravene Article 59(2):(a) a Director of a
Reporting Entity, while in possession of Inside Information, instructs an employee of that Reporting Entity to buy or sell an Investmentor a related Investment to which the Inside Informationrelates; and(b) a person, A, recommends or advises a friend, B, to buy or sell an Investmentin respect of which A is an Insiderand has Inside Information.
CMC 7-4 Defences4. Article 64(3) provides that a person shall not be found to have contravened Article 59 (providing inside information) if:(a) the person establishes that the information was disclosed by him in accordance with any requirement of the law or a court order; or(b) the person establishes that he reasonably believed that the
Inside Informationhad been disclosed to the market in accordance with this Law or the Rules.