The Investment Management Association (IMA) has asked the European Parliament to reconsider how inside information is defined under the Market Abuse Directive (MAD), suggesting an approach closer to that used in the UK.
The concerns were aired by Guy Sears, director of wholesale at the IMA, a UK-based trade body whose members manage around €4.7 trillion in assets, at a hearing arranged by the European Parliament’s Economic and Monetary Affairs Committee.
“The [current] wording in the [MAD] proposal on what is inside information could make it impossible for asset management companies to continue their active management practices, such as meeting with companies in which they invest to perform detailed interviews with senior management and with brokers who follow those companies,” said Sears. “They could never be sure that information disclosed to them during the course of these activities was not ‘relevant to an investor’, and if they traded following such meetings, they could be insider trading.”
Under article six of the Market Abuse Directive proposal made by the European Commission on 20 October 2011, any information made “available to a reasonable investor, who regularly deals on the market and in the financial instrument or a related spot commodity contract concerned”, would be considered as inside information.
Sears added that one way of resolving this discrepancy would be to use the UK’s relevant information not generally available (RINGA) test.
Under the RINGA test, inside information is regarded as that which is “likely to be regarded by a regular user of the market as a failure on the part of the person concerned to observe the standard of behaviour reasonably expected of a person in his position related to the market”.
Following the reading of MAD by the European Parliament, the proposal will then pass to the Council of the European Union for a subsequent reading. The European Parliament and the Council of the European Union will then be required to reconcile their separate texts with input from the European Commission in a series of trialogue discussions.