ESMA recently published a statement titled Good practices in relation to pre-close calls. The statement was prompted by media reports and verification by National Competent Authorities (NCAs) of a link between pre-close calls between issuers and analysts and subsequent volatility, in some cases raising suspicion about possible unlawful disclosure of inside information.
It should be noted that subsequent investigations of these apparent links didn’t reveal any violation of the Market Abuse Regulation (MAR).
“Pre-close calls” are communication sessions between an issuer and an analyst or group of analysts who generate research, forecasts, and recommendations related to the issuer’s financial instruments for their clients.
These “pre-close calls” usually take place immediately before the black-out periods preceding an interim or a year-end financial report during which issuers refrain from providing any additional information or updates.
The purpose of the ESMA statement is to remind issuers of the legislative framework applicable to pre-close calls and to identify good practices to which issuers should pay particular attention when engaging in such calls.
Pre-close calls should only provide non-inside information and, whenever inside information is accidentally disclosed during a pre-close call, MAR requires restoration of information parity by making the disclosed information public immediately.
The statement also includes a collection of best practices observed by National Competent Authorities (NCAs):
- Assessment of Disclosed Information: Prior to calls, issuers should thoroughly assess the information to ensure it is non-inside information.
- Public Disclosure: Announce upcoming pre-close calls with details, date, place, topics, and participants via the issuer’s website.
- Simultaneous Material Availability: Make the materials used in calls (e.g., slides, notes) available on the issuer’s website.
- Recording Calls: Record the calls and provide recordings to NCAs upon request.
- Keeping Records: Maintain and publish records of disclosed information on the issuer’s website for public access.
ESMA and the NCAs consider that following these good practices could reduce the risk of unlawful disclosure of inside information.
Reactions to the Statement
Responses from the Trade and e-Comms surveillance vendors emphasise the need for transparency and fairness in maintaining orderly markets that can be trusted.
Matt Smith, CEO at surveillance solutions provider SteelEye, is well positioned to comment on transparency gaps in the surveillance ecosystem. “ESMA’s statement is a stark reminder that without an emphasis on transparency during pre-close calls, a watchdog crackdown could well be on the horizon. Markets need to remain inclusive and democratic, ensuring everyone has the right to participate with equal knowledge and to make informed decisions. When a select few have unfair access to sensitive information, this of course influences the market – something regulators are evidently keeping a closer eye on.”
Smith’s concerns are well founded given the recent enforcement actions for shortfalls in e-Comms surveillance monitoring.
Oliver Blower, CEO of VoxSmart takes a more pragmatic view calling for regulatory clarity and rules instead of the grey areas surrounding issuer pre-close calls. “It is all very well ESMA trying to keep everyone honest, but these are guidelines, not legislation. Clear rules and transparency are key to keeping our markets trustworthy and fair – and this is what most market participants want as well.
The grey area is when exactly does activity of this nature become a disclosable event to the wider market? At the end of the day, if there is a suspiciously high share price immediately after an analyst call, any regulator is going to need to dig into not only the intricate details behind the trades, but also whether the bank in question provided the full and proper disclosures in a timely manner.”
Both Smith and Blower emphasize the importance of transparency and clarity in the management of pre-close calls to maintain market integrity and fairness. They share a concern for preventing unlawful disclosures and ensuring that all market participants have equal access to information. Both agree that well-defined practices and guidelines are crucial for fostering trust and inclusivity in the financial markets, aligning with the overarching goal of regulatory bodies to uphold a fair and transparent trading environment.
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