C-28/99

VERDONCK AND OTHERS

OPINION OF ADVOCATE GENERAL LÉGER delivered on 12 October 2000 1

1. Mr Verdonck, Mr Everaert and Mrs De laid down by the Directive, provided, Baedts 2 are all three members of the board however, that such provisions are applied of directors of NV Ter Beke, 3 which generally. resolved to purchase Chilled Food Business, a branch of NV Unilever. 4The defendants are being prosecuted in the Belgian courts for insider dealing. They stand accused of having taken advantage of this inside information to place orders on the stock exchange for the purchase of shares in Ter 4. According to the defendants, the Belgian Beke. legislation is more stringent than the Directive, in that it does not require the existence of a causal connection between the possession of inside information by an insider and the conclusion by the insider of a stock exchange transaction to be proved. On the other hand, the legislation intro- 2. The defendants in the main proceedings duces an exception for holding compa- claim that the Belgian legislation on stock nies. 6 According to the defendants, by exchange transactions, under which pro- making the criminal charge applied to them ceedings have been brought against them, is stricter while excluding holding companies, not in conformity with Council Directive the Belgian legislation fails to comply with 89/592/EEC of 13 November 1989 co- the Community provisions. ordinating regulations on insider dealing. 5

5. Consequently, the Court of Justice has 3. The defendants rely on Article 6 of the been requested to interpret Article 6 of the Directive, under which Member States may Directive in order to assess the freedom of adopt provisions more stringent than those action available to a Member State when it decides to implement the Directive by rules more stringent than those it sets out, while 1 — Original language: French. limiting those rules in a way favourable to 2 — Hereinafter 'the defendants in the main proceedings' or 'the holding companies. defendants'. 3 — Hereinafter 'Ter Beke'. 4 — Hereinafter 'Unilever'. 5 — OJ 1989 L 334, p. 30, hereinafter 'the Directive'. 6 — This concept is defined at paragraph 14 of this Opinion.

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2. Where the person referred to in para- 11. Article 181 of the 1990 Law defines the graph 1 is a company or other type of legal concept of 'inside information' as follows: person, the prohibition laid down in that paragraph shall apply to the natural per- sons who take part in the decision to carry out the transaction for the account of the legal person concerned.'

9. The first sentence of Article 6 of the Directive provides as follows: 'Inside information, for the purposes of this Code, shall mean information which has not been made public, of a sufficiently precise nature, relating to one or several issuers of transferable securities or other financial instruments or to one or several transferable securities or other financial 'Each Member State may adopt provisions instruments, which, if it were made public, more stringent than those laid down by this would be likely to have a significant effect Directive or additional provisions, provi- on the price of the transferable security or ded that such provisions are applied gen- securities or the other financial instrument erally.' or instruments in question.

B — National law

Insider information does not include information which holding companies pos- 10. The Directive was transposed into sess because of their role in the manage- Belgian law by Articles 181 to 189 of the ment of companies in which they have a Law of 4 December 1990 on financial shareholding, unless it is information which transactions and financial markets. 11 must be made public pursuant to the statutory and regulatory provisions con- cerning the obligations arising from the 11 — Belgisch Staatsblad of 22 December 1990, p. 23800, official listing of transferable securities on hereinafter 'the 1990 Law'. the stock exchange.'

(a) those companies or all or some of their (iii) or because he has access to such subsidiaries, or subsidiaries of their information by virtue of the exercise of subsidiaries, have issued an offer to his employment, profession or duties, subscribe to the Belgian public for the purpose of flotation or securing invest- ment in their shares or stocks;

possesses inside information that he or she knows is inside information, or cannot reasonably be unaware that it is such, shall (b) the value of their shareholdings is at be prohibited from acquiring or disposing least five hundred million francs in of, for his own account or for the account aggregate or which represents at least of a third party, either directly or indirectly, half of their own capital; transferable securities or other financial instruments to which that information relates.' 12 — Belgische Staatsblad of 14 November 1967, p. 11815.

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(ii) companies incorporated under Belgian 17. The acquisition agreement relating to law that have, or whose subsidiaries or Chilled Food Business was signed on subsidiaries of their subsidiaries have, 14 May 1996 by Ter Beke and Unilever. issued an offer to subscribe to the Belgian public, for the purpose of flotation or securing investment in their shares or stocks and which are subsidiaries or sub- sidiaries of subsidiaries of foreign compan- ies or institutions having, directly or indir- ectly, in companies incorporated under Belgian law, shareholdings whose value is 18. Between 6 and 8 February 1996, the at least five hundred million francs in defendants in the main proceedings had aggregate or which represents at least half placed orders on the stock exchange that of their own capital.' led to the acquisition of shares in Ter Beke at a price of BEF 2 590.

'(1) Does Article 6 of Directive 89/592/ EEC of 13 November 1989 coordinat- ing regulations on insider dealing, Inside information does not include which reads as follows: "Each Member information which holding companies State may adopt provisions more strin- possess because of their role in the gent than those laid down by this management of companies in which Directive or additional provisions, pro- they have a shareholding, unless it is vided that such provisions are applied information which must be made pub- generally" allow a Member State to lic pursuant to the statutory and regu- provide for a more stringent definition latory provisions concerning the oblig- in its legislation, whilst providing for a ations arising from the official listing of specific exemption from that more transferable securities on the stock stringent definition for a given cat- exchange. egory, namely holding companies?

(2) Is the implementation of Directive 89/592/EEC, transposed in Belgium The provisions of this Code are applic- by Article 181 of the Law of 4 Decem- able to transferable securities and other ber 1990, compatible with Article 6 of financial instruments within the mean- the Directive? Article 181 reads as ing of Article 1." follows:

"Inside information, for the applica- tion of this Code, shall mean informa- tion which has not been made public, (3) If the Member State has implemented of a sufficiently precise nature, relating Directive 89/592/EEC as the Belgian to one or more issuers of transferable legislature has done in Article 181 of securities or other financial instruments the Law of 4 December 1990, and such or to one or more transferable secur- implementation is contrary to the ities or other financial instruments, directive, does this mean that the more which, if it were made public, would stringent provisions are deemed not to

25. It may be surprising that interpretation 22. Both questions seek an interpretation of Article 6 is considered necessary in order of Article 6 of the Directive, which makes to reply to the second question. Article 181 the right to adopt implementing provisions of the 1990 Law clearly does not lay down more stringent than those laid down by the any 'more stringent' rule, within the mean- Directive conditional on those provisions ing of that provision. being applied generally. The national legis- lature chose a more stringent provision, in that Article 182 of the 1990 Law does not require a causal connection to be shown between the possession of inside informa- tion and the action of the insider on the 26. Since, under Article 181 of the 1990 transferable securities market with which Law, some information which holding that information is linked. Consequently, companies possess is not considered as evidence of infringement may be more inside information, those companies are easily adduced. excluded from the scope of application of

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the provision prohibiting insider dealing national legislation with Community law, where those companies make use of that the Court may, however, provide the information. Therefore, it appears that the national court with all the elements of 1990 Law appears rather less stringent than interpretation of Community law which the Directive, since it excludes from the may enable it to assess the compatibility of prohibition on insider dealing a certain that legislation with Community law, for number of stock exchange transactions the purposes of the judgment of the case carried out by holding companies on the brought before it. 13 basis of information not intended to be made public.

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which holding companies have a share- 33. Consequently, we have to assume that holding escapes, for that reason alone, that the information referred to in the second classification. It would therefore be pre- paragraph of Article 181 of the 1990 Law mature to conclude, as the defendants in as that which must be made public pur- the main proceedings do, 14 that holding- suant to the statutory and regulatory pro- company status is sufficient to determine visions concerning the obligations arising the legal regime applicable to the informa- from official listing of transferable secur- tion. ities on a stock exchange is information whose disclosure might have a significant effect on the market price of the shares concerned. Under national law, that infor- mation remains 'inside information'.

14 — The defendants in the main proceedings claim in fact that: 'Instead of changing the definition of the prohibition (of insider dealing] and exciuding from it certain dealings by holding companies, the legislature exempts those compan- ies (almost) completely from the prohibition of taking advantage of inside information' (pp. 11 and 12 of the French translation of their written observations). 15 — Point 6.2.3 of the Belgian Government's written observa- 35. A reading of Article 181 of the 1990 tions. The provision referred to by the Belgian Government Law shows that the exception for holding is Article 4(1 )(i) of the Royal Decree of 18 December 1990, relating to obligations arising from an initial public companies does not specifically exclude listing of transferable securities on the primary market of those companies from the more stringent the Belgian stock exchange (Belgische Staatsblad of 11 September 1990, p. 18138), as amended, most recently, by the Royal Decree of 30 July 1994. The Belgian prohibition laid down by the 1990 Law Government states that this provision has since been but, more generally, excludes them from replaced by the amended Royal Decree of 3 July 1996, on obligations concerning ad hoc information of issuers the actual prohibition, stated in the Direct- whose financial instruments are listed on the primary market and on a new market for transferable securities ive, of knowingly taking advantage of (Belgische Staatsblad of 6 July 1996, p. 18700). This inside information. The 1990 Law does reform did not result in any change in the obligation to make public certain information incumbent on quoted not merely reserve for those companies a companies. set of rules characterised by a less strict

37. In such a case, Member States enacting more stringent provisions would not con- 16 — Gaillard, E., and Pingel, I., 'Les opérations d'initiés dans la Communauté économique européenne', Revue trimes- travene the condition requiring the imple- trielle de droit européen, 26 (2), April-June 1990, p. 329, I-A; Calvet, H., 'La directive du Conseil des Communautés menting provision to be applied generally, européennes relative aux opérations d'initiés', Semaine juridique, Ed. E, No 49, p. 760,I-B,and Lambrecht, P., 'La since, right from the beginning, the Com- directive européenne relative aux opérations d'initiés', munity provision would allow some com- Revue de la Banque, 8-9/1990, p. 455, II-3-a.

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17 — Under American law, which adopts a similar approach, 'Inside information which has not been disclosed may be considered as being "material" where there is a substantial likelihood that disclosure of the non-divulged fact would have been considered by the reasonable investor as having significantly altered the available information, and there- fore altered the share price, which, on a competitive market, reflects all the available information and funda- 42. So, the Directive marks out a boundary mentally influences the decision of the investor', Bergmans, between information which could be clas- B., 'La responsabilité pour les opérations d'initiés en droit fédéral américain', Revue internationale de droit écono- sified as neutral and information which mique, 92 (2), p. 149.

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18 — 1 must admit that reading Article 181 of the 1990 Law and Article 4(1)(i) of the Royal Decree of 1990 left me somewhat surprised. The first paragraph defines 'inside information' as information capable of having a significant effect on stock exchange prices. The second paragraph provides for an exception for holding companies, but 47. However, the manner in which Art- makes an exception to this exception, defined in identically the same way to the principle from which the first icle 1 of the Directive is read and trans- exception seeks to depart. In other words, from the reading suggested by the Belgian Government (point 7.1 posed into the national legislation is open of its written observations), not contradicted on this point to doubt. The statements of the Belgian by the other interveners and confirmed by the content of the relevant provisions, it would seem that information Government suggest that, under the which holding companies possess is not 'inside informa- national law, the transferable securities to tion' except where it is liable to have a significant effect on stock exchange prices. This ultimately amounts to apply- ing to holding companies the ordinary law definition of 'inside information', as laid down both in the Directive and in national legislation. See, on the difficulty of establishing 19 — Third subparagraph of point 6.2.3 of its written observa- the precise scope of this provision, Lambrecht, R, cited above, p. 459. In the absence of other information for tions. guiding an interpretation, I will adhere to this reading of 20 —Article 2(1). the national law. 21 — Article 2(2).

48. A fuller reading of the national law 50. It can be concluded from the foregoing discloses, however, that the Royal Decree that the concept of 'inside information', of 1990 includes, in relation to bonds, a within the meaning of Article 1(1) of the provision equivalent to Article 4(1)(i), Directive, does not apply to information namely Article 12(i). 23 such as that defined in Article 181 of the 1990 Law. Information possessed by hold- ing companies owing to their role in the management of companies in which they have a shareholding may thus not be considered as 'inside information' if that information does not fall into the category of information which must be made public because it is likely to have a significant 49. In any event, it is for the national court, effect on the price of transferable securities. which alone is competent to interpret its national law, 24 to state whether, under the national legislation applicable at the time of the events at issue in the main proceed- ings, the category of information possessed by holding companies and which they must make public, pursuant to the second para-

analysis which has enabled the precise 54. In the case of information which those scope of the Directive to be defined. The companies possess and which the 1990 use by holding companies of information Law does not regard as 'inside informa- having no effect on the price of transferable tion', the exception which it constitutes to securities does not therefore fall under the the scope of application of the Directive prohibition on insider dealing. removes it from the ambit of both the prohibition on insider dealing, as laid down in the Directive, and, a fortiori, the more stringent provisions adopted by Member States under Article 6 of the Directive. 52. Since dealings relating to this kind of information do not fall within the scope of application of the Directive, they fall out- side the ambit of not only the legal regime which the Member States are required to introduce but also of the more stringent 55. Consequently, the answer to be given to provisions which the Member States may the first two questions must be that the adopt in implementation of the Directive. right laid down in Article 6 of the Directive to adopt more stringent provisions, provi- ded that they are applied generally, allows national legislation to exclude from the scope of its application information pos- 53. In the present case, holding companies, sessed by holding companies if that infor- like other companies, fall under the legisla- mation is not likely to have a significant tion on insider dealing, as enacted in a effect on the price of transferable securities. more stringent form in national law: where information in the possession of holding companies is regarded as 'inside informa- tion', within the meaning of the national law, it is subject to the prohibition laid down in Article 182(1) of the 1990 Law. 56. Having regard to all of the foregoing Therefore, no discrimination arises solely and given the information we have on the as a result of that information being used national legislation applicable, there is no by that kind of company. need to reply to the third question.