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Insider dealing - EC Directive 2003/6 of 28.01.2003 - Privileged information

European Union Court of Justice
23rd December 2009

Parties : SPECTOR PHOTO GROUP NV, X / COMMISSIE VOOR HET BANK FINANCIE EN ASSURANTIEWEZEN (CBFA)

Spector is a Belgian company listed on the Stock Exchange. It offers stock options to its employees allowing them to buy its shares. In order to honour its engagement in the case of employees exercising their options, Spector planned to first use the shares in its possession and then, if necessary, buy remaining shares on the market. During the year 2002, Spector needed to buy more than 45,000 shares on the market.
On the 21st May 2003, according to the Belgian regulations in force, Spector notified Euronext Brussels of its intention to buy a certain number of its own shares to carry out its share option programme.
From the 28th May to the 30th August 2003, Spector managed to buy a total of 27,773 shares. Four successive operations, each involving 2,000 shares, were done first. Then, on the 11th and 13th August 2003, X made two orders allowing Spector to acquire 19,773 shares at an average price of 9.97 euros, the price of the exercise of the options at cause being 10.45 euros.
Following this, Spector published information concerning its results and its commercial policy. The share price of the company increased as a consequence. On the 31st December 2003, it amounted to 12.50 euros.
By a decision of the 28.11.2006, the CBFA declared the purchases done based on the orders of the 11th and 13th August as insider dealing, prohibited by article 25, paragraph 1, of the law of the 02.08.2002 in its initial version. The CBFA inflicted a fine of 80,000 euros on Spector and 20,000 euros on X. The latter parties appealed against this decision before the Hop Van Beroep te Brussel.
According to this referral jurisdiction, the plaintiffs sustained that the CBFA had ignored the in mitius retroactive principle. The provisions of article 25, paragraph 1, of the law of 02.08.2002, in its modified version, are incompatible with the definition of insider dealing figuring in article 2 of the EC Directive 2003/6 of the European Parliament and Council of 28.01.2003 on insider dealing and market manipulation (market abuse). These provisions are therefore inapplicable.
Consequently, they considered that the incompatibility of these provisions with EC Directive 2003/6 caused a legal void, analogous to a more lenient penal law, and they opposed CBFA applying article 25, paragraph 1, of the 02.08.2002 law in its initial version.
Le Hof Van Beroep te Brussel decided to put off judgement and consult the Court on the notion of insider dealing. The referral jurisdiction wanted to know whether in order to be qualified as a prohibited operation, the primary insider, in possession of privileged information, does a market operation on the financial instruments to which this information relates, or if in addition it is necessary to establish that the information was used knowingly.
The Court replied that :

- Article 2, paragraph 1, of the EC Directive 2003/6 must be interpreted as signifying that when the person referred to in the second paragraph of this provision holds inside information and buys or sells or tries to buy or sell for his own account or for a third party financial instruments relating to this privileged information, this person has "used this information" in the sense of this law, unless the person is able to prove the contrary. The question whether the person has breached the prohibition on insider dealing must be analysed in the light of the final objective of this Directive, which is to protect the integrity of financial markets and reinforce the confidence of investors, that depends in particular on the assurance that the latter are on an equal footing and are protected against the undue use of inside information.
- Article 14, paragraph 1, of the EC Directive 2003/6 must be interpreted in the sense that the economic advantage resulting from inside dealing can constitute an element contributing towards determining an effective, proportionate and dissuasive sanction. The method of calculating this economic advantage and, in particular, the date or period to be taken into consideration, depends on national law.
- Article 14, paragraph 1, of the EC Directive 2003/6 must be interpreted in the sense that if a Member State makes it possible to inflict a penal fine in addition to administrative sanctions, when appreciating the effective, proportionate and dissuasive character of the administrative sanction, there is no need to take into consideration the possibility and/or level of an ulterior penal fine.

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