Over the next few months the Amsterdam Exchanges NV will be consulting bourse-listed companies and a wide circle of interested parties on a planned overhaul of the Code of Conduct for the Prevention of Insider Trading, which dates from 1987. To this end a consultative paper will be distributed in the coming weeks, to which parties are invited to respond before May 1. The document in question is a draft proposal of which the content has yet to be approved by the Stock Exchange Council.
The Code of Conduct has not been amended since it was first introduced in 1987 as Appendix IX to the Stock Exchange Regulations for Issuing Institutions. Nine years on, the Stock Exchange believes the Code of Conduct requires updating in order to enhance its effectiveness. Amendments to the Code should take into account the legal prohibition on insider trading, enacted in 1989 under the penal code, and the experience which has been gained in recent years with regard to effectiveness, scope and accessibility.
Integrity of the market and preventive measures Upholding the legal prohibition is time consuming and insufficiently effective. The penal code is complicated and a measure of last resort. For this reason it is of key importance that (violations of the ban on) insider trading be prevented wherever possible, to safeguard the integrity of the market, issuing institutions and all parties involved.
The Stock Exchange Association regards the Code of Conduct as an important and lastingly effective instrument because it tackles the issue at its root and is specifically geared to preventing insider trading. If the Code furthermore provides a procedure within the framework of a self-regulatory system whereby violations may be dealt with rapidly and efficiently, then it can prove a useful tool in combatting insider trading.
Most important proposed amendments
The Association has composed a draft for a new code of conduct intended for public discussion.
The key amendments to the existing code being proposed are as follows:
1. securities transactions effected by the issuing institutions themselves will fall under the code of conduct (examples include the acquisition of shares and the granting of options on shares by the company in its own capital);
2. alongside the insertion of the term 'insiders' (named as managing and supervisory directors in the existing Code) the term 'designated employees and designated third parties' will be introduced (as opposed to the 'designated parties' used in the existing code);
3. those persons linked to the insider, designated employee or designated third party will also be deemed to be covered by the code by virtue of an obligation imposed by the code on the insider, designated employee and designated third parties in question;
4. the issuing institution's opportunities to monitor compliance with the rule it has implemented will be enhanced because those persons linked to the insider, designated employee or designated third party will also be required to submit information on request with regard to securities transactions effected by them;
5. the monitoring of issuing institutions' compliance with the code of conduct will be stepped up with the introduction of a clear role for the external accountant;
6. the design and layout of the new code of conduct have been altered with a view to enhancing its accessibility;
7. the stipulations with regard to options are no longer grouped under a single article but have been integrated into various articles with a view to enhancing clarity (see the notes to article 2, clause 2 of chapter IV).
Alongside these proposed amendments a number of points have been put forward for discussion which could further bolster the code of conduct's preventive element. These have not been included in the draft. Should the consultative round reveal the existence of a broad base of support for a further expansion of the code of conduct's workings by including these suggestions, then these can be incorporated.
Additional points of discussion
1. Publication of securities transactions The existing code of conduct does provide for the disclosure of securities transactions effected by the insider to a central officer within the company, but not for their publication. Mandatory publication has a strong preventive effect. The details of publication have yet to be determined, whereby efforts could be made to link up with long-standing UK or US stipulations.
2. Sanctions in the event of infringements of the code In the event of a violation of the existing code of conduct the Association is empowered only to take the listings measures outlined under article 65 of the Listing and Issuing Rules. These measures are aimed only at penalising the issuing institution and not at the insiders who have violated the code of conduct. This means in effect that only the issuing institution can take steps against those violating the code. Conceivably a disciplinary forum could be set up, made up of representatives from the Stock Exchange Association and the issuing institutions. This forum would then be empowered to take steps against both the issuing institution and the person found to have violated the code of conduct.
3. Sanctions to be imposed on issuing institutions The existing sanctions of a suspension or cancellation of the listing should be expanded to include a further range of possible penalties. These could include the possibility of imposing a fine, or the publication of the infringement in question, possibly together with the name of the party found to have incurred the violation.
4. Sanctions to be imposed on those found to have violated the rules laid down by the issuing institution The sanctions to be imposed by the forum referred to above could range from the imposition of a fine through publication of the infringement -- with or without the name of the party involved -- to suspension or dismissal. By signing the code of conduct parties would bind themselves to the rulings of a forum of this nature.
After receiving and processing the response to these proposals the Amsterdam Exchanges NV furthermore plans to organise a conference with domestic and foreign participants to discuss the content of a new code of conduct in greater detail. The determination and introduction of the new code of conduct is set for the second half of 1996.
The consultative document is available on request from the Amsterdam Exchanges NV's department of Public Relations/Public Affairs.
For further information on the Amsterdam Exchanges NV, please contact: Thom Hoedemakers, Director of Communications, Amsterdam Exchanges NV, Beursplein 5, 1012 JW Amsterdam, Netherlands, Tel: + 31 20 5234014, Fax: + 31 20 5234950, or enter a text search "Amsterdam Exchanges NV" and "Business Monitor".
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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