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The Court of Justice of the European Union (ECJ) was given the task of getting inside the phrase “use of inside information”, by the Court of Appeals of Brussels in the case of Spector Photo Group NV, Chris Van Raemdonck v Commissie voor het Bank, Financie- en Assurantiewezen (CBFA), Case C-45/08.
This case arose from a series of dealings by the Belgian company Spector, which bought a number of its own shares on the Brussels stock exchange (Euronext Brussels) in order to implement a stock option program for its employees. After making two purchases, the company published certain results as well as information about its commercial policy. The company’s share price subsequently rose. Several years later, the competent national authority found that those purchases constituted insider dealing pursuant to domestic legislation. It imposed fines of EUR 80 000 on the company and EUR 20 000 on Mr Van Raemdonck, the manager who actually placed the purchase orders. They appealed from that decision and the Belgian national court referred several questions to the ECJ regarding the interpretation of Directive 2003/6, The Market Abuse Directive (MAD). The major question posed to the ECJ was whether, for a transaction to be deemed insider dealing, if it is sufficient to merely establish that a primary insider who possesses insider information has traded on the market in financial instruments to which the information relates, or whether it is necessary to also prove that the insider has used the inside information with full knowledge.
The ECJ stated that the goal of MAD is to fight against insider dealing and market manipulation in order to protect the integrity of the financial markets and enhance investor confidence. It should ensure that investors will be placed on an equal footing and be protected from the misuse of inside information. The directive defines insider dealing objectively i.e. it does not refer to an express mental element. The court thus concluded that mere proof that the insider has traded implies that inside information has been used within the meaning of the directive, and it is unnecessary to present evidence that the insider had full knowledge. This is, however, without prejudice to the rights of the defendants to rebut that presumption at trial.
This ruling suggests that differences between EU insider dealing law and US insider trading law may be disappearing. The ECJ sets a standard that is very similar to the one set by the US Securities and Exchange Commission (SEC) for insider trading in Rule 10b5-1(b) of the Securities and Exchange Act. In that rule, the SEC stipulated that a purchase or sale of a security violates the law if the person making that transaction was aware of material nonpublic information about the security or the issuer when the transaction was made. The stage has now been set for a more uniform approach to insider violations across markets and increased international cooperation among regulators.