538 19 A Listed Company as the Target
The purpose of the prohibition of abuse of inside information is “to ensure the integrity of
Community financial markets and to enhance investor confidence in those markets”.^116 The
prohibition is designed to increase “full and proper market transparency, which is a prereq-
uisite for trading for all economic actors in integrated financial markets”.^117 It is simply not
the purpose of the Directive to enhance transparency by permitting selective disclosure.^118
Basically, all securities market transactions are designed to give information about the is-
suer and the valuation of its securities, and price is an important mechanism to signal the
quality of securities (see the chapter on information management in Volume I).
This could mean that the disclosure of inside information to the potential acquirer
is subject to the usual restrictions (no recommending, no inducing, either confi-
dentiality or public disclosure, see above)^119 and that the potential offeror must not
use inside information by acquiring or disposing of financial instruments to which
that information relates.^120
Mutual dealings, Georgagis. This leads to the question of mutual dealings.
Where the same inside information is in the possession of all parties to the transac-
tion, no party will be able to abuse that inside information in their mutual dealings.
That was the view of the ECJ in Georgagis.^121 The ECJ went even further and in-
dicated that the parties in such a situation do not take advantage of inside informa-
tion in relation to any party.^122 The judgment of the ECJ is believed to be cor-
rect,^123 but it raises doubts. There is a difference between being fair to a contract
party and ensuring market integrity.
The difference between being fair to a contract party and being fair to all other people can
be illustrated by two early US cases. In the Matter of Cady, Roberts & Company was a case
about being fair to a contract party. According to the administrative opinion of SEC Chair-
man William Cary, an insider in possession of material nonpublic information must dis-
close such information before trading, or if disclosure is impossible or improper, must ab-
stain from trading in that company’s stock. In the case of Texas Gulf Sulphur, however, the
Second Circuit Court of Appeals held that Rule 10b-5 was intended to ensure that “all in-
vestors trading on impersonal exchanges had relatively equal access to material informa-
tion” and that all members of the investing public “should be subject to identical market
risks”.
In Georgagis, the ECJ took a very narrow view on the protection of investor confidence
and market integrity partly because the ECJ interpreted the Insider Directive 89/592/EEC^124
rather than the present Market Abuse Directive. The Insider Directive had a narrower
scope. For example, it did not contain any provisions on market manipulation.
(^116) Recital 12 of Directive 2003/6/EC (Directive on market abuse).
(^117) Recital 15 of Directive 2003/6/EC (Directive on market abuse).
(^118) For a critical approach to the prohibition of insider trading, see nevertheless Henry
Manne, Insider Trading and the Stock Market. The Free Press, New York (1966).
(^119) Article 3 of Directive 2003/6/EC (Directive on market abuse).
(^120) Article 2(1) of Directive 2003/6/EC (Directive on market abuse).
(^121) Case C-391/04 Georgakis [2007] ECR p I-3741, paragraphs 37–39.
(^122) Case C-391/04 Georgakis [2007] ECR p I-3741, paragraph 39.
(^123) See Moalem D, Lau Hansen J, Insiderhandel og informationsparitet – en analyse af EG-
Domstolens afgørelse i Georgagis, NTS 2007:3 pp 22–46.
(^124) Directive 89/592/EEC coordinating regulations on insider dealing.