Insider dealing and market abuse – Directive in site, October 2002

Legislation intended to combat fraud and abuse in EU financial markets moved a step closer on 24 October when the European Parliament approved a draft Directive on insider dealing and market manipulation (market abuse). The vote paves the way for the Council of Ministers to adopt a final text - incorporating amendments made by the Parliament - by the end of 2002.

The legislation will require analysts and other market professionals to disclose their own financial interests and share dealings, and is intended to:

• increase standards for market integrity;
• contribute to the harmonisation of the rules for market abuse throughout Europe;
• establish a strong commitment to transparency and equal treatment of market participants;
• require closer co-operation and a higher degree of exchange of information between national authorities, thus ensuring the same framework for enforcement throughout the EU and reducing potential inconsistencies, confusion and loopholes.

The Commission is keen to emphasise that the new Directive 'will not in any way handicap journalists', stressing that reporters acting in good faith have nothing to fear: the legislation is aimed at those 'who deliberately or negligently pass on false information and then profit financially or otherwise from having done so'. Financial analysts and journalists who recommend investment strategies to the public or to distribution channels will be required to disclose any relevant interests they might have. However, in the case of financial journalists who give investment advice, MEPs backed an amendment intended to ensure that measures implementing the Directive must take account of any relevant professional requirements, including any on self-regulation.

Despite official assurances, the Financial Times was concerned that journalists would suffer under the new legislation: 'journalists could be prosecuted if they are suspected of having made a financial gain from inside information'. The FT also highlighted a warning from the European Publishers' Council that the Directive could limit journalists' freedom of expression.

Calling on the Council of Ministers to now adopt the Directive quickly, the European Commissioner for the Internal Market, Frits Bolkestein, said:

'Europe has no truck with the type of greedy financial cheats who have caused so many recent problems. Scandals like Enron show clearly the need for strong rules to make markets safer, so that they remain free of abuse and free of fraud. The smooth functioning of financial markets and public confidence in them are essential for sustained economic growth and wealth creation. Abuse of markets means companies end up having to pay more for the finance they need, dissuades investors and damages the economy. We must do everything to stamp it out and to restore public confidence in our markets. This Directive will just do that.'

Links:

European Commission:
	24.10.02:	Securities markets: Commission welcomes European Parliament approval of proposed Market Abuse Directive [IP/02/1547]

	DG Internal Market: Securities
	Pre-Lex: COM (2001) 281 2001/0118/COD: Proposal for a Directive of the European Parliament and of the Council on insider dealing and market manipulation (market abuse)

European Parliament:
	Insider trading - yes to common position with safeguards for journalists

European Sources Online: Financial Times:
	24.10.02:	EU approves tough insider rules

European Publishers' Council:
	Homepage

Eric Davies
KnowEurope Researcher,
Compiled: Friday, 25 October 2002

Legislation intended to combat fraud and abuse in EU financial markets moved a step closer on 24 October when the European Parliament approved a draft Directive on insider dealing and market manipulation (market abuse). The vote paves the way for the Council of Ministers to adopt a final text - incorporating amendments made by the Parliament - by the end of 2002.