CopiedDelayed Disclosure of Inside Information Concerning Financial Reporting

The main rule in MAR is that inside information should be published as soon as possible (Article 17). However, a publication may be postponed if all of the following conditions are met (Article 17.4):

1. Immediate disclosure is likely to prejudice the legitimate interests of the Company.
2. It is unlikely that deferred disclosure misleads the public.
3. The company can ensure that the information remains confidential.

Challenges in Interpretation Copied

The requisite (1) above is, particularly in Sweden, the most debated and difficult to interpret. On 20 October 2016, ESMA issued guidelines with a non-exhaustive list of possible cases. None of these examples guides handling common questions concerning company reporting. One ESMA example that some experts interpret as being closest at hand is:

“The inside information relates to decisions taken or contracts entered into by the management body of an issuer which need, pursuant to national law or the issuer’s bylaws, the approval of another body of the issuer, other than the shareholders’ general assembly, in order to become effective, provided that:

• i. Immediate public disclosure of that information before such a definitive decision would jeopardise the correct assessment of the information by the public; and
• ii. The issuer arranged for the definitive decision to be taken as soon as possible.”

The interpretation of this point is not obvious. It aimed to address jurisdictions with a dual board system rather than company reporting.

Guidance from UK FCA Copied

Certain NCAs (notably UK FCA per its 2018 guidance consultation) have provided some clarity regarding requisite (1) (likely to prejudice), specifically when an issuer is preparing a periodic financial report. The UK FCA indicated that delayed disclosure could indeed be allowed when:

“Immediate public disclosure of information to be included in the report would impact on the orderly production.”

However, requisites (2) and (3) must also be fulfilled. Expert opinions from other jurisdictions suggest that issuers may delay disclosure of financial reporting in production to avoid chaos in the reporting process.

Avoiding a Blanket Approach Copied

A blanket approach—treating financial reporting information as always or never being inside information—is prohibited. Each case must be assessed individually.

Particularities of Financial Reporting Copied

Financial reporting is a unique insider situation. It is highly regulated, with companies often expecting inside information to arise late. It may seem appropriate to draw an analogy to ESMA’s guidelines, especially point (c), in understanding the reasons for delaying disclosure. MAR (Article 17) “as soon as possible” is central to this analysis.

Risk of Market Confusion Copied

Experts argue that if financial data is released in bits and pieces before the board decides on the proposed report, it could impair the decision process and confuse the market. Nasdaq Stockholm supports this reasoning, noting that if a report deemed inside information is approved after the exchange’s closure, it may be acceptable to release it early the next morning before opening.

Determining When Financial Information Becomes Inside Information Copied

A critical component of the analysis is assessing at what point the information being compiled, analyzed, and proposed reaches such a level of gravity and finality that it becomes inside information in the strict sense of MAR.

Different Approaches by Issuers Copied

Different types of issuers take varied approaches to handling this assessment:

• Bond Issuers and Stable Companies: Typically, they do not issue reports containing inside information in a strict sense.
• Operating Companies with Equity Instruments: Generally have reports that do contain inside information.

The prevailing approach is often “better safe than sorry.” This means treating information as inside information early in the reporting process and managing insider groups accordingly. Larger companies may add groups and individuals later, as they tend to have a compartmentalized system for handling bookkeeping.

Commonly Accepted Practices Copied

The “better safe than sorry” approach has become commonly accepted, particularly in Sweden. This approach extends to deciding whether the report’s content is inside information and considering the information as inside information early in the reporting process.

The general conclusion is that financial reporting is not specifically regulated, and practices vary between issuers and jurisdictions. However, the “better safe than sorry” approach has proven effective in avoiding serious MAR sanctions.

A final point worth noting is that an issuer who delays disclosure when preparing a financial report must still notify the supervisory authority upon subsequent publication of the report on the indicated date.

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Or see our overview of how to document your decision to delay disclosure of inside information using Logwise.