European Union: Meaning Of Inside Information And The Importance Of Prompt Decision Making

Last Updated: 19 June 2012
Article by Timothy Sumner and Mark Howard

Case Update - Markus Geltl v Daimler AG

On 21 March 2012, European Advocate General Mengozzi (the AG) delivered his opinion in the case of Markus Geltl v Daimler AG; a case concerning the circumstances in which deliberations or steps in a decision making process may constitute "inside information" and require disclosure to the market. Whilst the opinion of the AG is not binding, there is a reasonable probability it will be followed by the European Court of Justice (ECJ). As such, the opinion is of interest to both issuers and their corporate advisers.


In short, the case concerns the resignation of the Chairman of the management board of Daimler AG. Following an AGM in April 2005 the Chairman began to consider his position and whether he would bring forward his retirement date (then planned for 2008). The Chairman discussed this first with his wife (who was also his office manager) and subsequently raised it with certain members of the Daimler supervisory board on 17 May 2005, began preparing a press announcement on 10 July 2005 (in consultation with Daimler's heads of communications and company secretariat) and then agreed with the Chairman of the Daimler supervisory board on 18 July 2005 that they would propose his retirement (and his successor) at a supervisory board meeting to take place some ten days later. The supervisory board approved the Chairman's resignation on 28 July 2005 and the market was promptly informed of the same, following which shares in Daimler rose approximately 17.6% to a high of €42.95 (compared to a pre-announcement opening price of €36.50). This sharp price increase then resulted in a number of investors who had sold shares prior to the announcement commencing proceedings seeking damages on the basis that the announcement had been made too late.

The Higher Regional Court, Stuggart, held that inside information had not come into existence until the Supervisory Board took its decision on 28 July 2005. On appeal, the German Federal Court of Justice decided to seek guidance from the ECJ on the proper interpretation of the term "inside information" including in particular whether intermediate steps which have already been taken or which are connected with bringing about a future set of circumstances or event can constitute inside information.

AG's Opinion

The AG opines that where a process is intended over a series of intermediate steps to result in a particular event, facts which relate to such intermediate steps and are connected with bringing about the future event may themselves be regarded as inside information (provided the facts are sufficiently precise and capable, if disclosed, of significantly affecting the prices of financial instruments or related derivatives).

On the question of precision and the wording in Article 1 of the Market Abuse Directive which refers to information being deemed to be of a precise nature if it indicates a set of circumstances which exist or "may reasonable be expect to come into existence", the AG opines that it would be of no use to define in the abstract a particular percentage threshold below which it could not reasonably be thought that an event should occur. The AG also indicated that "reasonable expectation" does not require that the probability of the set of circumstances or event in question occurring be assessed as preponderant or significant. Indeed, the AG opines that greater weight may be attached to the capability of the information to significantly affect the prices of financial instruments so that where the potential of the information for affecting prices is significant, it is sufficient that the occurrence of the future set of circumstances or event, albeit uncertain, be not impossible or improbable.


In terms of UK regulation and practice, the AG's opinion on the issue of intermediate steps is consistent in our view with existing non-binding guidance issued by the FSA ( available here) which makes plain that it is not acceptable for a company to delay an announcement where a decision relating to material information (such as a change of senior management) has clearly been made but not yet received formal board approval. That said, if accepted by the ECJ, the opinion will likely serve to encourage, if not oblige, a stricter interpretation of the rules and no doubt give rise to difficult judgement calls, particularly concerning whether a decision or event has effectively been taken or is reasonably expected to occur based on intermediate facts. In practical terms then, the opinion therefore reinforces the view that:

  • company executives should act in a coordinated and expeditious manner in taking decisions with a view to minimising the risk of intermediate decision making steps becoming disclosable (whether under the Disclosure and Transparency Rules or the AIM Rules for Companies); and
  • companies should continue to be aware that intermediate steps in decision making processes and steps taken subject to board approvals may require disclosure prior to final board approval being given. In such circumstances, advice from legal advisers and brokers/NOMADS should be sought to guard against inadvertent rule breaches.

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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