Reversal of the Hannam case's interpretation of inside information
The ECJ recently published its judgment in the case of Jean-Bernard Lafonta -v- Autorité des marchés financiers (Case C-628/13) on March 11. The case centred on the interpretation of "precise" information under the current Market Abuse Directive (Directive 2003/124) and contrasts with the UK decision in the 2014 Hannam case.
Mr Lafonta was chairman of a French investment company (Wendel S.A.) which entered into a number of derivative agreements between December 2006 and June 2007. The underlying assets under these derivatives agreements were shares in a French multi-national company, Saint-Gobain S.A. (SG). Wendel did not (nor did Mr Lafonta) inform the French financial regulator (AMF), that it had entered into these agreements. Pursuant to the derivative agreements, Wendel subsequently acquired 17.6% of SG's share capital and disclosed the holding to the AMF.
However, the AMF claimed that Mr Lafonta and Wendel failed to disclose to the market, amongst other things, information relating to a financial operation designed to enable Wendel to acquire a significant shareholding in SG. In his defence, Mr Lafonta contended that inside information included only information from which the holder would be able to infer the direction of the price movement and so give an advantage to the holder, in that the holder would be able to decide whether a financial instrument should be bought or sold.
The ECJ held in favour of the French regulator. The ECJ decided that you do not need "to infer from that information, with a sufficient degree of probability, that, once it is made public, its potential effect on the prices of the financial instruments concerned will be in a particular direction". In short, the holder needs to know only that the information would affect the price of the shares, rather than knowing whether the share price would go up or down.
This casts doubt over the applicability of part of the judgment in the Hannam v the Financial Conduct Authority  UKUT 0233 (TCC). The Upper Tribunal in the Hannam case held that precise information must be such that it is possible to predict the direction of the movement in the share price which would or might occur if the information were made public. The ECJ has now reversed this element of the Hannam judgment and has potentially lowered the bar for what will amount to inside information.