Financial PR: Going MAD

Opinions vary on the effect of the Market Abuse Directive (MAD) on financial PROs with price-sensitive information, as Richard Carpenter discovers.

Financial PROs who thought they had enough on their plate in terms of new regulatory initiatives from the Government should prepare for another helping. A wealth of directives will be emanating from Europe over the next couple of years, and the Market Abuse Directive (MAD) is one of the first to be turned into UK law.

Among other things, MAD gives legal guidance on the dissemination of price-sensitive information, the management of inside information, and new rules on market manipulation (see panel, p22). It is just part of a wider plan to integrate Europe's financial markets. The move to International Financial Reporting Standards for all listed companies is another part of the EU's jigsaw, as is the Prospectus Directive.

Scintillating it may not be, but MAD will have a major impact on the way companies communicate with their audience. Its implementation has already kicked up a storm, with some commentators complaining that wrapping everything up in legalese will make the job of actually communicating messages to analysts, investors, and journalists nigh-on impossible.

PRO fears

'MAD is a pretty good description,' sighs one leading IRO. While some see MAD as a tightening up of legislation rather than introducing radical change, he sees it as unnecessary interference from Brussels at a time when the UK's existing market abuse legislation was beginning to be understood and have teeth of its own.

He is reluctant to be named in case it singles him out for attention from the regulatory authorities. 'It is a bit like the Sarbanes-Oxley Act in the US (introduced in the wake of the collapse of Enron and WorldCom), a raft of new rules and regulations that have been rushed through in response to bad or illegal practice in one or two companies. People were breaking the rules that already existed. Sarbanes-Oxley will not prevent people breaking the rules, nor will this new legislation in Europe.' He believes that cases such as the UK's Marconi and Italy's Parmalat, where companies are charged with failing to disclose price-sensitive information to the market in good time, have contributed to these 'European versions of Sarbanes-Oxley'.

Certainly, there are several financial PROs out there who have got the jitters as a result of advance advice from their lawyers or corporate brokers. There are fears that companies will be forced to comment on market rumours, thus giving them the unenviable task of monitoring all information at all times.

Similarly, some financial PROs flag the notion that every conversation with every analyst, investor and journalist will have to be minuted - raising the possibility that should PROs bump into, say, a friendly analyst at an airport they cannot risk having a chat. Others point to practical concerns. Like being advised that they might not be able to send press releases through to the market via their Primary Information Provider, or PIP, the night before a release is due to go out. This raises the situation of all companies sending releases at 7.01am rather than spreading the load after the market has closed the night before.

The Financial Services Authority (FSA), which has been charged with implementing MAD into UK legislation, says that many of these fears are misplaced. 'Not a lot is going to change,' says David Cliffe, a spokesman for the FSA. He points out that a lot of the directive is based on the UK's Financial Services and Markets Act in 2000. The EU used the UK legislation as a base in drawing up the new regulations.

Indeed, the Government appears to have been so peeved that the EU did not fully implement its ideas, that it has decided to overlay the MAD requirements onto existing regulations and then review the whole lot again come 2008. Cliffe says that the new approach will 'slightly codify' some of the existing legislation but financial PROs and IROs really shouldn't see that much of a difference. Yes, companies will have to consider carefully who they give inside information to - and when - but all of this is covered in the existing regime.

'People shouldn't be passing on inside information in any case,' he points out, when asked about the prospect of having to 'minute' every conversation with analysts, investors and journalists. He says that the old legislation already required companies to release price-sensitive information to the market as soon as possible: 'This position will continue. The practice is not going to have to change significantly in this area.'

Concern over rumours

Simon Gleeson, a partner in the regulatory group at corporate law firm Allen & Overy, says the changes are not huge - but are changes nonetheless.

He says that the definitions of 'inside information' and 'relevant information', and how to deal with market rumours, are likely to be the main areas of concern for financial PR practitioners. Another consequence is that the existing Price-Sensitive Information Guide (PSI Guide) will cease to exist but nothing has been written to replace it. Gleeson believes that everyone will still turn to the old PSI Guide when in doubt - even though it will be out-of-date in many respects.

'What this doesn't do is change the fact that everyone will still have to make judgements over price-sensitive information,' says Gleeson. 'In fact the disappearance of a lot of the guidance may make life a bit harder in some respects. The good thing is that sensible management teams have their attention drawn to these issues. It makes investor communications focus on getting it absolutely right rather than approximately right.'

Mark Hynes, managing director of investor relations at news dissemination agency PR Newswire, which also acts as one of the UK's regulated PIPs, believes that there are some positives to be drawn from MAD. 'What is terrific is that there will be a higher standard for insider dealing and market regulation right across Europe. That gives investors confidence.

The impact will be less in the UK than in some other continental European markets because we already have high standards of regulation. Companies will just have to be that much more careful about their wording of price-sensitive information.'

That's a sentiment echoed by Lynda Ashton, head of IR at Sainsbury's and treasurer of the UK's Investor Relations Society. She says that the FSA has been increasing its pressure on listed companies on the correct and rapid disclosure of price-sensitive information for some time. MAD is purely an extension of this trend.

With true PR aplomb, she points to the example of Morrisons choosing to issue a profits warning in mid-March whereas in the past it - and any other company in a similar position - might have waited until its preliminary results a week later. 'From an IRO's perspective you have to keep up to date with developments and make sure you release price-sensitive information as soon as you can.'


Aimed at 'promoting integrity in Europe's financial markets', the Market Abuse Directive (MAD) is just one part of a wider mission to integrate the EU's financial markets under what is known as the Financial Services Action Plan.

The MAD is largely based on existing UK legislation - but the EU has 'tweaked' certain areas in order to accommodate the views of other member states. The UK's Financial Services Authority is insistent that the MAD will not change the situation that much for financial PROs or financial journalists.

Areas for financial PROs to consider under the new legislation include:

- An even stronger requirement than before to be very careful about the wording of price-sensitive information, including conversations with journalists, analysts and investors.

- A need for companies to draw up a list of those who have access to inside information - and carefully consider who gains access to that information. Agency PRs will also fall within the requirement to maintain a list if they are acting on behalf of a company and have access to inside information.

- Careful consideration of how your company deals with market rumours. Legal perspectives differ but the legislation does make it clear that a 'no comment' approach is not a good enough defence in certain circumstances. Talk to your lawyer.

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