The alchemy of journalism – turning market rumours into inside information

The recent judgment of the Court of Justice of the European Union (CJEU) has ruled that details of the forthcoming publication of a press article reporting a market rumour about a potential takeover bid for a listed issuer may constitute ‘inside information’.  This conclusion may not come as a complete bolt from the blue to market participants: just as a star analyst's research can move markets, so too can an article from a prominent journalist in a media organization, whose prominence and professional reputation lend credibility to their reports.

The case, Mr A v Autorité Des Marchés Financiers (AMF) ECLI-EU-C-2022-190, provides a timely reminder that in considering when information is of a precise nature (and specific enough) to be inside information, the threshold may be lower than you think – just because the information concerns a rumour doesn't necessarily mean it is too vague or general to enable a conclusion to be drawn as to the possible effect of publication of that information on the target's share price.

Article 21 of the Market Abuse Regulation (MAR) (which deals with disclosure and dissemination in the media does not create a specific scheme intended to restrict the ambit of unlawful disclosure in article 10 of MAR.  To be lawful, journalists' disclosures of inside information must, as for anyone else, be made in the normal exercise of their profession, and will only be justified if strictly necessary for the purposes of journalism. Helpfully, the CJEU confirmed this would cover investigative work or verification prior to publication.  Nonetheless, going forward, financial journalists may feel more constrained in reaching out to their usual sources to confirm market rumours.

Background

In 2011 and 2012, Mr A, a Daily Mail journalist, published articles relating to securities admitted to trading on Euronext.  Each mentioned a possible takeover bid for a named issuer (one also named the potential acquirer) and the proposed bid price.  Following publication, the target's share price rose.  Shortly before publication of the articles, two persons purchased shares in the relevant companies, which they then sold after publication. The French AMF found that Mr A had disclosed information about the forthcoming publication of the press articles reporting on the takeover rumours to those persons.

On appeal, the Cour d'appel de Paris referred the matter to the CJEU seeking guidance, in summary, on three broad areas, including:

• whether information about the forthcoming publication of a press article reporting a market rumour about a listed issuer could be 'of a precise nature' and therefore inside information, and the factors that may be relevant to that consideration;
• the interaction between article 21 of MAR (Disclosure or dissemination in the media) and article 10 (Unlawful disclosure);
• whether disclosure of inside information 'for the purpose of journalism' must be strictly necessary for the exercise of that profession and comply with the principle of proportionality.

When is information of a precise nature?

In this case, the information in question fell into two distinct (though plainly linked) parts: the information about forthcoming publication of articles, and the takeover rumours contained in the articles.  To be information 'of a precise nature', both sets of information considered together must enable a conclusion to be drawn as to the effect of publication on the price of financial instruments.[1] The fact that what is to be published is a market rumour about a possible takeover bid does not necessarily mean the information can't be 'of a precise nature'; the totality of the information may still be (and in this case plainly was) sufficient to give the recipients an advantage over other investors.

Information which names an issuer in scope of MAR, and the conditions of the takeover bid, is not 'vague or general'.  It is not 'impossible to draw a conclusion as to the possible effect of its publication on the price of the financial instruments concerned' (see the test in Lafonta, C-628/13; EU:C:2015:162 at §13). Inclusion of a proposed bid price may impact that assessment (as with naming the acquirer, the additional detail may suggest the rumour has more substance).  However, even without that, given that bid prices generally include a takeover premium, the market could reach a conclusion on the likely effect of publication on price.

The journalist and media outlet's reputations are potentially decisive to the assessment of whether the information will be of a precise nature; they lend credibility to the rumour, as investors will presume the information comes from sources the journalist considers reliable.

The facts known or disclosed before publication are critical in determining whether the information was of a precise nature (ex post evidence of the actual impact of the publication on price cannot alone establish that).

A special regime for disclosure or dissemination in the media?

The referring court had asked whether article 21 of MAR introduced a specific scheme intended to restrict the ambit of unlawful disclosure in article 10 of MAR where disclosure is made for the purposes of journalism.  The CJEU ruled it was not – the definition of unlawful disclosure of inside information is expressed to be for the purposes of the Regulation, and must apply to the situations in article 21.

When could disclosure be 'for the purposes of journalism'?

The case-law of the European Court of Human Rights requires broad interpretation of concepts relating to fundamental freedoms such as the freedom of the press and the freedom of expression. Therefore investigative work preparatory to (and for the purposes of) publication of an article, including a journalist's disclosure (to a usual source) of information about a forthcoming article reporting on a market rumour, may be a disclosure of information 'for the purposes of journalism'.

Nonetheless, to be lawful, the journalist's disclosure (and each element of it) must be made in the normal exercise of his/her profession (journalistic codes or rules likely to be relevant here), and will only be justified if it is strictly necessary for the exercise of that profession and complies with principles of proportionality (pursuant to Grøngaard and Bang, C-384/02, EU:C:2005:708).

The CJEU accepted that journalists may need to verify information of which they become aware, and disclosure may be necessary where the recipient of the information to be verified is reasonably suspected to be the source of the rumour. However, disclosure to a third party should be confined to what is necessary in order to verify the information to be reported. Establishing the necessity of disclosing information about the forthcoming publication of the article is likely to be a more significant hurdle going forward.

Next steps and practical measures

The Cour d'appel will now have to consider whether on the facts of this case the disclosure made was necessary, and whether it is proportionate to restrict such a disclosure, weighing in the balance the freedom of the press and the freedom of expression on the one hand, and potential harm to investors and the integrity of the financial markets on the other.

As the CJEU judgment was handed down after 1 January 2022, UK courts are not bound by it, although they may have regard to it where relevant.  It seems to us very likely that the UK FCA would adopt similar reasoning.

The price of professionalism

Journalists, meanwhile, are left to work out how best to go about verifying market rumours they may wish to report on. Importantly, the reasoning in the case extends to reporting on any kind of market rumours – the principles are not confined to market rumours about takeover bids. Thinking carefully about what the journalist needs to verify and how this might be achieved is presumably already part and parcel of the investigative approach.

• In terms of who can be approached, the judgment is helpful in suggesting that verifying details with the source of the rumour could be necessary for the purposes of journalism; it would seem greater caution may be called for where other parties are to be approached;
• Limiting the extent of the information disclosed would be a sensible precaution:
  • the CJEU's judgment leaves one in little doubt that a journalist would not wish to be disclosing any details about any forthcoming article, but of course the fact the journalist is making contact is probably of itself sufficient to enable the contact to infer that publication of some report of what is being discussed is more than a merely fanciful possibility, and indeed that publication would be likely to occur within a short period.
  • For market rumours generally, the journalist will wish to consider whether it is necessary to disclose each element of the information they are seeking to verify.
  • For takeover rumours, rather than providing the rumoured bid price, journalists might instead ask for the recipient's view as to what a credible price might be; withholding the identity of the proposed acquirer would also seem sensible (and of course if the acquirer is listed, whilst less likely, it is not inconceivable that the information could also be inside information is relation to both target and acquirer).

But it is not obvious how a journalist could seek verification from a usual source (other than the journalist's initial source) of a takeover bid rumour without disclosing of the issuer's name and the fact that a bid is rumoured.  And the CJEU appears to suggest that since news of a takeover bid typically implies an offer at a premium over market price, that information alone could be sufficient to enable a conclusion to be drawn as to the effect of publication on the target's share price.

Might there then be a role for some form of precautionary preamble? A journalist might make the approach to the contact on the basis of wanting to have a conversation to verify something they have heard about an issuer (not yet named), noting that the recipient might then need to consider whether they might be restricted from trading in that issuer's financial instruments for a short period. This, as a form of 'professional' discipline, would not of course prevent the recipient from trading, but it would put the recipient on notice that they should not do so, and would perhaps help in evidencing that the disclosure was made responsibly, in the normal exercise of the journalist's profession. Plainly this would not be particularly attractive to a journalist. As market participants can attest, whether the full article 11 market sounding procedure is engaged or something more akin to an NDA, such formalities can have a chilling effect.

Interestingly, although journalistic codes would typically preclude the journalist from disclosing the contact's identity, the contacts in this case appear to have been identified by the regulator (conceivably by virtue of the timing and short term nature of their trading). With regulators now having an almost real time view of the order book and trading, the prospect of such informed trading being identified in short order have risen incrementally.

A shorter version of this article was prepared for Lexis/Nexis.

[1] UK readers may be reminded of the Upper Tribunal's consideration of the 'precise nature' of partially inaccurate information in Hannam v FCA, [2014] UKUT 0233 (TCC)