Other Legitimate interests (ESMA)

3.2 Legitimate interests of the issuer that are likely to be prejudiced by immediate disclosure of inside information

46. ESMA’s empowerment to issue guidelines refers only to issuers, as emission allowances
market participants are not mentioned in Article 17(11) of MAR.

47. In drafting these guidelines ESMA has taken into account the cases of legitimate interests
of the issuer that are likely to be prejudiced by immediate disclosure of inside information
mentioned in Recital 50 of MAR and the examples provided by CESR in its second set of
Guidance (CESR/06-562b).

48. The examples of legitimate interests of the issuer to delay the disclosure of inside
information provided in Recital 50 of MAR which mirror Article 3(1) of Directive
2003/124/EC are:

a) ongoing negotiations, or related elements, where the outcome or normal pattern of
those negotiations would be likely to be affected by public disclosure. In particular,
in the event that the financial viability of the issuer is in grave and imminent danger,
although not within the scope of the applicable insolvency law, public disclosure of
information may be delayed for a limited period where such a public disclosure
would seriously jeopardise the interest of existing and potential shareholders by
undermining the conclusion of specific negotiations designed to ensure the longterm
financial recovery of the issuer;

b) decisions taken or contracts made by the management body of an issuer which
need the approval of another body of the issuer in order to become effective, where
the organisation of such an issuer requires the separation between those bodies,
provided that public disclosure of the information before such approval, together
with the simultaneous announcement that this approval is still pending, would
jeopardise the correct assessment of the information by the public.

49. The examples provided by CESR in its second set of Guidance (CESR/06-562b) are:

a) confidentiality constraints relating to a competitive situation (e.g. where a contract
was being negotiated but had not been finalized and the disclosure that
negotiations were taking place would jeopardise the conclusion of the contract or
threaten its loss to another party). This is subject to the provision that any
confidentiality arrangement entered into by an issuer with a third party does not
prevent it from meeting its disclosure obligations;

b) product development, patents, inventions etc. where the issuer needs to protect its
rights provided that significant events that impact on major product developments
(for example the results of clinical trials in the case of new pharmaceutical products)
should be disclosed as soon as possible;

c) when an issuer decides to sell a major holding in another issuer and the deal will
fail with premature disclosure;

d) impending developments that could be jeopardised by premature disclosure.

50. In the guidelines ESMA decided not to include «impending developments that could be
jeopardised by premature disclosure», as it was deemed to be a too generic provision.

51. The fact that the issuer has legitimate interests that are likely to be prejudiced by immediate disclosure of the inside information is not sufficient, per se, to delay the disclosure of inside information. In fact, for an issuer to be able to delay the disclosure of inside information, all the conditions set forth in Article 17(4) of MAR must be met.

52. It should be highlighted that such a list of legitimate interests of the issuer that are likely to be prejudiced by immediate disclosure of the inside information is not meant to be
exhaustive and there may be other situations where issuers have legitimate interests.
However, it should be borne in mind that the possibility to delay the disclosure of inside
information as per Article 17(4) of MAR represents the exception to the general rule of
disclosure to be made as soon as possible according to Article 17(1) of MAR, and therefore
should be narrowly interpreted.

53. The list is also indicative. It should be for the issuers to explain that they are in a case
where their legitimate interests are likely to be prejudiced by immediate disclosure of inside
information, and each situation, including those listed in these guidelines, should be
assessed on a case by case basis.

3.2.1 Ongoing negotiations and grave and imminent danger to the financial
viability of the issuer

54. These two cases, already mentioned in Recital 50 of MAR, are maintained in the guidelines and are separately listed as examples of situations where legitimate interests to delay the disclosure of inside information may exist.

55. A legitimate interest may exist where the issuer is conducting negotiations, the outcome of which would likely be jeopardised by immediate public disclosure of that information.

56. Further to the feedback received on the CP, ESMA decided to provide some examples,
explicitly mentioning mergers, acquisitions, splits and spin-offs, purchases or disposals of
major assets or branches of corporate activity, restructurings and reorganisations. The list
of examples provided should not be considered exhaustive.
57. Another instance that may constitute a legitimate interest under Article 17(4)(a) of MAR
could be where the financial viability of the issuer is in grave and imminent danger, although
not within the scope of the applicable insolvency law, and immediate public disclosure of
the inside information would seriously prejudice the interests of existing and potential
shareholders, by jeopardising the conclusion of the negotiations aimed at ensuring the
financial recovery of the issuer.

58. No substantial changes are proposed with reference to this particular case. ESMA would
like to highlight that, compared to the drafting in Recital 50 of MAR, no reference is made
to the “long term” financial recovery of the issuer, as ESMA is of the view that also the
successful conclusion of negotiations aimed at ensuring the “short term” financial recovery
of the issuer could constitute a legitimate interest to delay disclosure of inside information.

59. Note that this particular case does not refer to the possibility of delaying public disclosure of information related to the issuer’s temporary liquidity in order to preserve the stability of the financial system under Article 17(5) of MAR.

60. Finally, it should be reminded that Article 17(4) of MAR states that it should be for the issuer to explain to the national competent authority, in addition to how the other two conditions for delaying disclosure of inside information are met, how immediate public disclosure is likely to prejudice the issuer’s interests and jeopardise the conclusion of the negotiations aimed at ensuring the financial recovery of the issuer.

3.2.2 Decisions taken or contracts entered into by the management body of an
issuer which need the approval of another body of the issuer in order to
become effective

61. A legitimate interest of the issuer to delay disclosure of inside information, already
mentioned in Recital 50 of MAR, may arise where the inside information relates to
decisions taken or contracts entered into by the management body of an issuer which
need, pursuant to national law or the issuer’s bylaws, the approval of another body of the
issuer in order to become effective.

62. This is the case of two-tier issuer systems where certain types of decisions of the
Management Board have to be approved by the Supervisory Board in order to have legal
effects.

63. However, in order for that to be considered a legitimate interest to delay disclosure of inside information, in the draft guidelines proposed in the CP, ESMA stated that the following conditions had to be met:

a) an announcement explaining that the approval of another body of the issuer is still
pending would jeopardise the correct assessment of the information by the public;

b) an announcement explaining that the approval of another body of the issuer is still
pending would jeopardise the freedom of decision of the other body;

c) the issuer arranged for the decision of the body responsible for such approval to be
made, possibly within the same day;

d) the decision of the body responsible for such approval is not expected to be in line
with the decision of the management body, as for instance it would be where the
two bodies are expression of the same shareholders represented in the
management body or in cases where such body has consistently approved the
management body’s decision on similar issues.

64. Taking into account the responses to the CP, ESMA acknowledged that the conditions
proposed in the CP were too restrictive and very challenging to meet. Therefore, in the final
guidelines ESMA provides only two conditions:

a) immediate public disclosure of that information before such a definitive decision
would jeopardise the correct assessment of the information by the public; and

b) the issuer arranged for the definitive decision to be taken as soon as possible.

65. Compared to the drafting proposed in the CP the final guidelines no longer make reference to the requirement that “an announcement explaining that such approval is still pending would jeopardise the freedom of decision of the other body”, nor that “the decision of the body responsible for such approval is not expected to be in line with the decision of the management body, as for instance it would be where such body is the expression of the
same shareholders represented in the management body or in cases where such body has
consistently approved the management body’s decisions on similar issues”.

66. An example relating to the first condition is related to the fact that, in practice, the public is aware that, most of the time, the Management Board will try to ensure that its decision will not be reverted and most decisions taken by the Supervisory Board are expected to be in
line with the Management Board’s decision. Therefore, where the Management Board has
doubts as to whether the decision of the Supervisory Board will be in line with its decision
and sees a rejection or an amendment to their decision as a possible scenario, then the
public could be misled by immediate public disclosure of the information, as they may see
the decision of the Supervisory Board as granted while it is not.

67. In addition, no possibility of delay should be granted where the issuer does not arrange for the definitive decision to be taken as soon as possible.

68. The above conditions are aimed at ensuring that the simple fact that issuers have two
different decisional bodies does not represent, per se, a legitimate interest to delay the
disclosure of inside information until the second body’s definitive approval.

69. As a general rule, issuers are expected to disclose the inside information explaining that
the definitive decision of the issuer’s second body is still pending. Only where the above
conditions are met, the issuer would have a legitimate interest to delay the disclosure of
the inside information.

3.2.3 Development of a product or an invention
70. A legitimate interest for the issuer to delay disclosure of inside information, already
mentioned in the CESR second set of Guidance, may be where the issuer has developed
a product or an invention and the immediate public disclosure of that information is likely
to jeopardise the intellectual property rights of the issuer.

71. In this particular case it will be the issuer’s interest to proceed to patent the product or the invention or otherwise protect its rights by other means as soon as possible.

72. Note the issuer should be able to explain to the national competent authority how
immediate public disclosure is likely to prejudice the ability to patent the product or the
invention or otherwise protect the issuer’s rights.

3.2.4 The issuer is planning to buy or sell a major holding in another entity
73. A case of legitimate interest for the issuer to delay disclosure of inside information may be where the issuer is planning to buy or sell a major holding in another entity and the
implementation of such plan is likely to be jeopardised with immediate disclosure of that
information.

74. This particular case differentiates from the case of ongoing negotiations as it involves
situations where such a plan has been already decided but the negotiations have not
started yet. ESMA would like to highlight that this particular case requires evidence of the
decision taken in view of realising the plan.

75. Given that the list of legitimate interests is not meant to be exhaustive, there may be other examples of actions planned before the start of any negotiations that may constitute a
legitimate interest of the issuer.

76. Note the issuer should be able to explain to the national competent authorities the reasons why the conclusion of the planned deal is likely to fail with immediate disclosure of that information.

3.2.5 Deal or transaction previously announced and subject to a public authority’s approval
77. A respondent to the DP suggested that the guidelines include in the list of legitimate
interests the case where the issuer is discussing with a public authority (e.g. Antitrust)
about possible conditions that such public authority might impose on the issuer for the
transaction to be effective.

78. Taking into account the response to the DP, the guidelines proposed in the CP mentioned the legitimate interest that may exist in the situation where a deal or transaction previously announced is subject to a public authority’s approval, and such approval is conditional upon additional requirements, where the immediate disclosure of those requirements will likely affect the ability for the issuer to meet them and therefore prevent the final success of the deal or transaction.

79. Given that non respondents commented on that, this point was confirmed in the final
guidelines.

80. ESMA would like to highlight that, in case of take-overs or mergers and acquisitions the
legitimate interest to delay the disclosure of inside information does not relate to the
disclosure of the take-over nor the merger and acquisition announcements themselves.
When these decisions are announced the issuers should provide the public with proper
information about the public authorities’ pending approval or authorization, including the
existence of possible conditions that could be imposed by such authorities. A legitimate
interest to delay relates to the actual conditions that the public authorities may impose
further to the announcement, in the course of the contacts with the issuer within the
authorisation process. Such conditions may be the selling of part of a business in a
determined geographical area (that could be imposed by a competition authority) or an
increase in the capital of the issuer (that could be imposed by the prudential authority,
where the issuer is also a regulated person).

81. Note that the delay is only admissible where the issuer can justify how immediate
disclosure of the above conditions will likely affect the possibility for the issuer to meet such
requirements