HC Deb 12 June 1989 vol 154 cc661-75 10.38 pm
The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Francis Maude)

I beg to move, That this House takes note of European Community Documents Nos. 7310/87 and 8810/88 and the Supplementary Explanatory Memorandum submitted by the Department of Trade and Industry on 22nd May 1989 relating to insider trading; and supports the Government's view that a practical and workable Directive would demonstrate Member States' common desire to take vigorous action against insider trading. The draft insider dealing directive has two principal purposes. First, it will require member states to make insider dealing unlawful. Secondly, it will require them to co-operate in obtaining and exchanging information for enforcement purposes.

The House will recollect that it was a Conservative Government who, in 1973, first brought forward legislation to make insider dealing illegal in the United Kingdom. It was this Government who, in 1980, saw the measure on to the statute book. Britain was among the leaders in Europe in legislating in this area. Since 1980 we have made further changes, in the Financial Services Act 1986, with the aim of intensifying the drive against insider dealing.

Both in the drafting of legislation and in its operation, insider dealing law is intensely difficult, as every country in the world which has enacted it has discovered. In the discussions on the directive, I have been keen to ensure that the directive reflects our considerable success in enforcing the law. Like other member states, we sought a measure that was precise, that was practical and that was enforceable. That was not the case with the original draft. But I believe that, as a result of detailed discussions in Brussels, we are very close to a text that achieves those aims.

I turn now to the text of the directive itself. At its centre are the definitions of primary and secondary insider, and the prohibition on trading on inside information. The proposals put forward last year were very broad and vague. They did not require, for example, a primary insider to know that the information that he had was inside information, but they would have caught as primary insiders people whom we regard as secondary insiders—or even not as insiders at all. The text simply prohibited the taking advantage of insider information in buying or selling any transferable securities.

That all added up to a text that went very substantially beyond our law. The text was very wide ranging and in our judgment impossible to operate successfully. It would have greatly increased the area of uncertainty for honest people without making it any easier, and possibly much more difficult, to bring wrongdoers to book. As a result of lengthy and robust discussions in Brussels, we have now arrived at a text which reflects our own experience in this area of legislation.

Mr. William Cash (Stafford)

Will my hon. Friend say whether the Government intend to bring in criminal or civil sanctions with respect to the prohibitions included in the directive?

Mr. Maude

As my hon. Friend will know, our present law operates by way of criminal sanctions and, as I hope I am outlining, the directive, as it is emerging, will not go significantly beyond what our present law requires, save in one area to which I shall refer. In those circumstances, there will certainly be no need for us to contemplate legislating or enacting this by way of civil rather than criminal sanctions. However, there may quite independently of that be a case for considering whether some sort of civil sanctions provide a better and more flexible means of enforcing the law in that area.

At the same time as arriving at a text that reflects broadly our experience, it will involve a modest strengthening of our law to prohibit certain insider transactions that are not properly caught at present. The definition of primary insider reflecting our own experience is much more precise, practicable and enforceable. The primary insider is prohibited from taking advantage in full knowledge of the facts. It has a new definition of primary insider that is clear and more restrictive than the original draft, thus helping to restore the balance between primary and secondary insiders. The text now prohibits taking advantage of inside information in buying or selling transferable securities to which the information relates, and that rider was missing in the earlier text. Each of the three key problems here has been resolved.

Our present law has been much criticised from time to time for its complexity—for example, the prohibition on a primary insider dealing is more than 100 words long—and on some occasions that complexity has not been helpful in the pursuit of offenders.

I have welcomed the opportunity presented by the Brussels discussions of going for rather more clarity and simplicity and at the same time a modest strengthening of our law to prohibit certain insider transactions that are not properly caught at present.

I cannot stress too much that it is extremely important that the prohibition on insider trading does not unintentionally and accidentally forbid such ordinary and proper business practices as a takeover, or any large purchase or sale of securities, but, at one stage, the draft text did this. I can tell the House that those practical problems, together with others relating to analysts, to market markers, and to permitted stabilisation activities, have all been resolved.

The second of the directive's strands is increased international co-operation. Insider dealing, like other financial frauds, is no respecter of frontiers. It is about as easy to insider deal on the London stock exchange from Paris as it is, for instance, from Norwich. International co-operation between regulators is already, in general, good. Again, Britain is among the leaders in Europe in that respect. The Companies Bill currently being considered in Committee contains special provisions for my Department to assist overseas regulators.

I should also mention one thing that is not in the directive. At one stage considerable, and justified, anxiety was created among companies at the suggestion that the directive would require them to release much more information. They might, absurdly enough, have had to announce that they had begun to think about making a decision before being in a position to take that decision or to act upon it. That would simply have flooded the market with useless information, while harming the ability of companies to conduct their own business in a sensible and practical manner. A proper flow of information to the market is, of course, vital, but it should be meaningful information.

I am glad to tell the House that the directive now contains a provision that, while it may modestly increase the flow of information to the market, does so in a sensible and contained way.

I should also tell the House that I propose, in implementing the directive, to redeem a pledge made by this Government in 1985: that insider dealing will be made an offence in all securities, not just corporate securities and options and futures based on them. That will bring within the scope of the legislation gilts and other securities.

The motion invites the House to support the Government's view that a practical and workable directive would demonstrate member states' common desire to take vigorous action against insider trading. I believe that this is such a directive. We are and remain determined to take vigorous action against insider dealing. I commend the motion to the House.

10.45 pm
Ms. Joyce Quin (Gateshead, East)

There should be no doubt that insider dealing is a major crime. Many have claimed that there are no real victims and that prices are merely driven up—that is a natural operation of capital involving the necessary winners and losers. They suggest that the principles of the free market allow for people to take advantage of such a situation to gain profit. Fortunately, however, increasingly that view is held by the minority. The majority has concluded—I believe that it is the opinion of the House—that insider dealing is a form of theft. The victims sell shares, for example, on a false basis to people in possession of privileged information that will clearly affect the price of the share.

The crime also involves a betrayal of trust, in that people use secret information to deceive and to enrich themselves. On many occasions the loser, as we know, is the investor representing the interests of ordinary people —perhaps he looks after the savings, assurances or small shareholdings of such people. Those buying and selling shares without access to such secret information are often at the mercy of their opponents. Over a short time chain reactions can occur, often across national frontiers, as a result of the electronic, internationalised market, which causes great damage to unsuspecting individuals and firms.

Given the scale of insider trading scandals in the United Kingdom in recent years, it was right to take action. The Government introduced legislation in 1980 and that was consolidated in the Company Securities (Insider Dealing) Act 1985 when criminal sanctions were introduced. Since then the maximum prison sentence for insider trading has increased from two to seven years, although the number of prosecutions for insider trading has been small despite the existence, in theory, of those penalties. I shall return to that issue later. We believe that the practical control and punishment of insider dealing is far from satisfactory currently.

We welcome the EEC directive and we shall not divide the House on it. It would be rather hard to take exception to the carefully worded motion on the Order Paper. It is important that in the large European market that is supposed to become a reality in 1992 there should be systems to control and to punish insider trading.

We welcome both the co-ordination of rules and the obligation to exchange information. It would also be highly unsatisfactory if we were trying to bring successful prosecutions for insider dealing in the large European market when much securities trading was being done across the national boundaries of national authorities which had weaker rules or did not regard insider trading as a serious offence. It is clear that if standards are more lax elsewhere there may be a temptation for people to do business in other financial centres, which could mean a move towards a general reduction in standards rather than the improvement which we wish to see.

It is also worrying that some other EC countries do not have adequate rules on insider trading at present. As I understand it, in addition to the United Kingdom, only Denmark and France penalise insider trading. Will the Minister tell us a little more about the attitude of other countries towards the directive? He seemed to indicate that agreement was likely and that many of the difficulties had been sorted out. Have any of the member countries any serious objections and are those which, to date, have not had rules on insider trading happy at the prospect of an EC directive on the issue?

The issue matters to us more than to many other countries because our securities market is by far the most important and is for us a much more important means of raising equity finance than it is in other EC countries. Therefore, although the treaty base being used for this is article 100A and although I fully understand that that article is used to govern internal market decisions, it would not be a good idea if we were outvoted on the directive because our interest is so great. Fortunately, that does not seem likely.

I note that there was a change of treaty base governing the directive. It has not been fully explained why it was necessary to change the base. Will the Minister tell us whether doing so has had any practical effect? As I understand it, both article 54 and article 100A rely on the majority voting system.

Will the Minister also give a few more details about the timetable, and how certain, if anything can be said to be certain, agreement is likely to be? I believe that there is to be a meeting of the Economic and Finance Ministers on 19 June at which this may be considered and that there is likely to be a meeting of officials before that. Will the Minister say whether that is so? Has there been ministerial representation at the various meetings to discuss the directive? How recent was that? Will there be ministerial, rather than merely official, representation when the subject is next discussed?

The fact that we have the most experience of trying to tackle the problems of insider trading within the EC does not mean that we have been particularly successful. On recent evidence, we have been far from successful. I hope that the directive will be more effective than our existing provisions. The major weakness of our regime is its failure to bring prosecutions. We have the rules, authorities have powers, evidence often seems to be available, but people are not charged and convicted.

As has been mentioned by Opposition Members in previous debates on this subject, we have reason to believe that the practice is more widespread than is usually thought. To back that up, Opposition Front Bench spokesmen and women have pointed to the high proportion of takeover bids that are preceded by erratic movements in the share prices of the companies involved.

Mr. Tim Smith (Beaconsfield)

I understand the hon. Lady's frustration at the lack of prosecutions in this area, but does she think it enough to say that there seems to be sufficient evidence? Is not the problem that often there is not sufficient evidence and that it is difficult to obtain hard evidence in support of a prosecution?

Ms. Quin

There is evidence, but it is often not hard enough to make a prosecution stick. A great deal of worry is expressed in the press and elsewhere about the small number of prosecutions, and there is a feeling that the problem is not really being t ackled. I refer the House to an article in The Independent of 16 November of last year: Despite the major play the DTI has made out of its campaign against insider dealing, the crackdown has in reality been unimpressive"—

Mr. Cash

The hon. Lady will also note that in that same article it was stated of the Opposition spokesman that he drew attention…to what he believed to be 17 prima facie cases of insider dealing. His analysis of the problem, however, would certainly have caused some hilarity among professional insider dealers. He had taken 17 cases where a company's share price rose sharply ahead of a bid announcement. This, he said, was evidence of a leak and massive insider dealing. In the part of the article to which the hon. Lady was not going to refer, the attitude of the Opposition spokesman was seriously criticised.

Ms. Quin

The hon. Gentleman must claim to be a mind reader. Since I had just begun to quote from the article, I do not know how he can say with such authority that I was not going to refer to a section that appeared later. I draw the hon. Gentleman's attention to the fact that The Independent article takes a line similar to one in the Evening Standard and to yet another in The Economist. The hon. Gentleman may be about to wave another sheaf of articles at me, but I assure him that I am not quoting an isolated instance. I am quoting several newspapers and journals—

Mr. Maude

Earlier, the hon. Lady referred to evidence of widespread unprosecuted insider dealing. Does she accept that the mere existence of a movement in shares shortly before a takeover bid is announced is by no means conclusive evidence of insider dealing? It may simply be evidence of the bidding company building up a platform for its bid in advance of announcing its offer. There is nothing improper in that.

Ms. Quin

I did not claim that there was. I claimed that there had been such a large number of such movements that it raised questions, which I am sure the Minister would concede.

Mr. Maude

I must press this. The hon. Lady said that there was evidence of widespread unprosecuted insider dealing. The only evidence she has referred to, apart from quoting a comment in a newspaper which persuaded none of us, was the movement of some shares before a bid. I have pointed out, and she seems tacitly to accept, that there is a perfectly plausible and proper explanation for that. I ask again: where is the evidence of this widespread unprosecuted insider dealing?

Ms. Quin

Has the Minister examined all such cases of movements and is he entirely satisfied that there have been no irregularities? Unless he has, I cannot be absolutely reassured by what he says.

Mr. Maude

Of course I have. The hon. Lady should inform herself a little better about these matters. If there is untoward movement in share prices or any evidence of dealing in advance of a bid, the stock exchange's insider dealing group conducts an investigation. If there is prima facie evidence of insider dealing, it is referred to my Department. There have been a great many such cases since the powers to appoint investigators under the Financial Services Act 1986 came into force. These inspectors have draconian powers—to quote the Opposition spokesman in the House of Lords—to gain evidence. I can assure the hon. Lady that all cases are properly investigated. If there is any evidence of impropriety it is pursued relentlessly.

Ms. Quin

I am certainly prepared to consider what the Minister has said. In preparing for this debate, I had to look back at the various debates that have taken place. I found that the Opposition did not seem to be satisfied with what seemed to be rather complacent comments by the Minister.

Perhaps I may continue to deal with the article in The Independent, even though that is proving difficult in view of the many interventions. The article claims: There are now 18 investigations under way and a further seven cases of suspected insider dealing under consideration. Some prominent City names are said to be involved. It is a fair bet, though, that few if any of these investigations will be addressing the real, endemic problem of insider dealing—that of the large-scale professional insider dealing rings. It is well known in the City that such rings, which often operate on an international scale covering a number of different markets, exist and they are big business: finding them and successfully prosecuting their members is another matter. That seems to call for a clear system on an international level as well as on a national level. Presumably that is why most of us are in favour of the European directive.

Mr. Cash

Earlier the hon. Lady and the Minister said that the directive contains provisions to deal with matters relating to co-operation between member states and third party states as well. I do not understand the hon. Lady's point. Surely she understands that if the directive contains provisions dealing with the points raised in The Independent that ought to deal with the matter.

Ms. Quin

That assumes that the directive has been satisfactorily completed. I am raising matters that I hope will be taken into account in the final form of the directive. The directive has still not been completely agreed by the Council of Ministers and the debate is about putting forward ideas which we hope will be given due weight, whether or not they are actually printed in the directive at present. I hope that the directive will make the system simpler and clearer, that its provisions will be easy to enforce and that prosecutions will be easier.

There has been a mixed reaction to the directive. In the debate in the European Parliament, MEPs from Government and Opposition parties in the United Kingdom supported the directive. I pay tribute to my colleague, the MEP for Derbyshire, who presented the report on the subject and received widespread support from the other MEPs. There has been City anger at the European Community proposals which have been described as too wide and too far reaching.

I have received a brief from the Confederation of British Industry, as I am sure have other hon. Members. It deals with the proposed directive, and shows that the CBI feels that there are still considerable problems of definition. The CBI brief says: The CBI, therefore, asks Members to ensure that: When the Directive is adopted—and it has to be written into UK law—there will not be any material alteration to the present UK law. That does not seem to be a suggestion that I can support. If an alteration would mean an improvement, I do not see why there should not be a "material alteration" to the United Kingdom law.

Mr. Maude

Would the hon. Lady like to suggest the specific improvements that she would like to see us have embodied in the directive or passed into our own law?

Ms. Quin

There may be improved ways to get information and bring about prosecutions. The Government seem to be satisfied with the way things have worked out. Despite the barracking that I received when I referred to press accounts of this subject, I do not believe that all the articles in the press are unjustified or that the Government's complacency is justified.

Some final comments on the directive have been made by the Law Society, in particular in an article in the Law Society's Gazette of 2 June, which I wonder whether the Minister has seen. He is not responding, so I do not know whether he has. If he has not, I recommend that he does, because the submission from the Law Society makes valid points about the problems of definition and about the scope of the directive. It also makes points about the extra-territorial implications of the directive, and the Law Society is concerned that the directive appears to contemplate only transactions in which the EEC territories are involved. It asks about what happens when the insider is within a member state, but the transaction is carried out in a non-member state. Has that aspect been considered in the EEC negotiations?

The Government's explanatory memorandum, submitted by the Department of Trade and Industry on 9 September 1987, says in point 20: The provisions in the proposal which relate to co-operation between Member States will need to be considered in the light of other initiatives in this field—in particular, the possible convention of the Council of Europe. What progress has there been in the Council of Europe? What implications will negotiations within the Council of Europe have for the passing of this directive?

The Government's explanatory memorandum also says that the United Kingdom has signed memoranda of understanding on the exchange of regulatory information in the financial services sector with the United States. Will that agreement extend to other EEC countries if the directive is agreed?

There remain problems about the directive that need to be sorted out. Of themselves, they do not negate the need for such a directive. The European national moves to stamp out insider trading are vital, but they also have to mean that our system becomes more rather than less effective. If this is the outcome of the negotiations in Brussels, we shall welcome the directive.

11.7 pm

Mr. William Cash (Stafford)

The motion invites us to support the Government's view that a practical and workable Directive would demonstrate Member States' common desire to take vigorous action against insider trading. I shall not go into all the details, because most of them are in the explanatory memorandum, but a considerable number of ambiguities need to be resolved before 19 June. This excellent document is quite remarkable in its way. It is the first time that I can remember an explanatory memorandum that has gone into such detail. It gives advice to the House, or those who wish to read these things, as to the manner in which the original proposals have been amended as they have gone through the various stages.

The hon. Member for Gateshead, East (Ms. Quin) berated my hon. Friend the Minister for perhaps not reading an article by the Law Society, published on 2 June. Judging by her concluding remarks, I have grave doubts as to whether she has read the explanatory memorandum of 22 May 1989. She referred to one in September 1987, but the important bit is the memorandum of May 1989, which came to the Select Committee on European Legislation, contained those remarks to which I have referred, and made it clear that considerable progress had been made. However, there are still a number of problems with the directive, some of which are inherent in it and some of which, no doubt, can be resolved within the framework when it is implemented under the European Communities Act 1972.

Will the new formulation about knowledge, which is the context in which insider dealing arises, impute knowledge only where Chinese walls have been breached? I appreciate that that is a fairly technical question, but it is important that hon. Members clearly understand it. I welcome my hon. Friend the Minister saying that the directive will enable us to continue to permit takeovers. He also answered my earlier question about whether it would be dealt with under criminal or civil law.

An interesting article appeared in The Economist today criticising the federal court of New York for the manner in which it is trying to impose its sanctions extra-territorially outside the United States under rules devised there. It raises an important question about legal reciprocity. As I said in the Committee considering the Financial Services Bill, on which my hon. Friend the Member for Beaconsfield (Mr. Smith) and I sat some years ago, when dealing with international law—and I made this point in an article that I wrote in "Lloyd's log" as well—if one is dealing with a small global village, there must be some parity between different legislative systems, because at the press of a button one can effect transactions of immense complexity. Insider dealing depends on when and how knowledge was acquired. Courts have experienced difficulty about the meaning of the words "knowledge obtained". I am glad to see the Attorney-General nodding, because an important case was considered quite recently. To fix the liability in a manner that will give rise to a prosecution that will stand muster it is essential, first, that one is sufficiently certain about the law; secondly, that the prosecuting authority is prepared to act effectively; and, thirdly, because of the nature of international transactions in a small global village, that there is some relationship between legal systems.

Serious doubt has been expressed about the vires of the treaty. We are aware of something called the vires committee, which is a forum not of medical but legal diagnosis. I believe that it has been considering carefully the way in which article 100A is being put forward as the treaty base for the directive. If we do not try to restrain the competence of the Commission—the Prime Minister made this point recently about the tobacco industry—when it tries to go beyond the lines of the treaty, we shall be in serious trouble. The European Court of Justice has a tendency towards political integration, as I have said on many occasions. It is essential that we ensure that the treaty base is the proper one.

The legal adviser to the Select Committee on European Legislation criticised the use of article 100A. I understand that the Government gave an assurance to the Committee that they would provide a statement on the manner in which the treaty base was being dealt with. I am not aware that such a statement has been produced, but I hope that it will be before our meeting on Wednesday. If we are to do our job properly, it is important that we are fully aware of the basis on which the treaty will be used, and this includes the Single European Act.

The question is: who does one prosecute? There still appears to be confusion on this important .question. Is it the individual or is it the company? It appears from the explanatory memorandum that it is the individual. The British Bankers Association sent me a letter today showing that it thought that it could apply to companies as well. This matter should be resolved. Perhaps there is a simple answer, but there still appears to be some uncertainty.

It is essential that we remove ambiguities and confusion. This measure will be an important ingredient in the fight against criminal insider dealing in the Community. Other countries do not have these laws. We have had them since 1980 and we must ensure that they are used effectively. I congratulate the Government and my hon. Friend the Minister on the manner in which the matter has been dealt with so far, but there is considerable scope for removing much of the remaining uncertainty.

11.16 pm
Mr. Win Griffiths (Bridgend)

I support this fairly general, straightforward and simple Government motion on insider trading. As my hon. Friend the Member for Gateshead, East (Ms. Quin) said, I do not think that any of us would deny the need for legislation. As steps are taken towards an internal market, it is obvious that legislation is needed across the Community.

I have never traded on the stock exchange. I have to rely on what others, including Conservative Members, tell me happens there. That is not to say that I believe everything that I am told. It is a fiendish and difficult area in which to legislate. The Government's legislation and the development of explanatory memorandums over the past few years as this proposed directive has been discussed at European level can only reinforce our feelings about the difficulties.

Questions have been raised about the legal base. An extract dated 7 June from the 24th report of the Select Committee on European Legislation for the 1988–89 Session was placed in the Vote Office today. It said that in its 23rd report the Committee recommended "further consideration" of two documents—one relating to insider trading, and the other containing amendments to the original draft directive. It asked the Government to submit to the Committee, ahead of the debate, a statement of its position on the proposed choice of treaty base and the reasons why it no longer considers Article 54(3)(g) to be appropriate, as its earlier Explanatory Memoranda had not covered this point. This statement has now been received from the Department of Trade and Industry and is reproduced as an Appendix to this paragraph. I will not read out the Department's three-point explanation, but I will say that it seems to be an extremely sensible interpretation of article 54(3)(g) and its shortcomings in covering the draft directive. Article 100A, which deals with moves towards the internal market, seems the most sensible step to take.

In considering the difficulties that still exist, paragraph 35iii on page 9 of the explanatory memorandum mentions the uncertainty about the position of authorised stabilisation operations. As I understand it, they have been custom and practice on the British stock exchange. From what I have read, they seem to be a reasonably harmless way of trying to establish markets for trading in companies that are new to the stock exchange. I would be interested, purely for information, to know what the Minister feels is the likelihood of proposals in the draft directive which would take account of that point, or whether there are any countries that feel so strongly about the matter that they would not consider such proposals. However, as decisions are being made by qualified majority, there will be an opportunity to carry the proposals forward.

On the issue of just when insider information is misused, there seem still to be areas that require clarification. I found the explanatory memorandum tremendously helpful in setting out the way in which the proposal and the nuances of earlier references in the directive have been changed. Nevertheless, it is still difficult for a lay person such as myself to follow the memorandum because it is nine pages long. It would be beneficial to hon. Members if the explanatory memorandum took the form of a comparison of the earlier version of the draft directive with the latest version.

Mr. Cash

I share that thought with the hon. Gentleman because I believe that it is important that people should be able to make a reasonable assessment. There is a way of dealing with the problem which is known as a Keeling schedule. It shows, in heavy black type, the amendments made by reference to the original, so one can then see the document as a whole and also the differences that have been introduced. That would be useful for legislation taken on the Floor of the House and for legislation that is taken in the Standing Committees on European Community documents.

Mr. Griffiths

The amended form of the draft directive is presented in the European Parliament papers in the form of two columns. One can read the original directive and any changes are set out opposite. The word "unchanged" is printed where the draft has remained the same. If the Government gave us a copy of the amended directive as a single document, together with all the valuable points that are made in the explanatory memorandum of the way in which further changes have been incorporated following discussions in Brussels, it would be useful in dealing with legislation. I found it difficult earlier today and over the weekend to sort out exactly what the proposal was and what changes had been made.

I refer also to the article on insider trading in the Law Society's Gazette, No. 22, which was provided by the helpful research department in the Library and which was posted on the board this afternoon.

I should like to take up a point made by my hon. Friend the Member for Gateshead, East (Ms. Quin) about the extra-terrestrial implications of the way in which the directive is intended to work. The writer of the Law Society article, Dr. Janet Dine, of the Institute of Advanced Legal Studies and a member of the company law committee, is of the opinion that under the terms of the directive as drafted someone who has committed an offence in Britain on the Paris stock exchange may have to be extradited to Paris for the case to be heard.

If that is the case, it is a drawback in the directive. There should be some way of framing the provisions to allow the case to be heard either in the state where the person concerned lives or where he or she has initiated the offence of insider trading. As I am neither a stockbroker nor a lawyer, I do not know whether the concept of the European legal space, which is referred to so often in the context of the development of the single market and other ideas on closer co-operation, could be useful in a directive of this nature.

The Minister said that satisfactory agreement had been reached over exactly what information needs to be published and at what stage when a company is thinking about a takeover bid, but I wonder whether that agreement also covers issues relating to the disclosure of an offence. Article 2(b) of the amended directive prevents a director recommending that his company should bid for another company when he has insider information concerning that target as it would prevent the director of a target company from selling issues when he has similar information. Can the Minister tell us anything about that?

I turn to the vexed question of the effectiveness of our legislation. Several articles have been referred to, all of which I have read, if not digested entirely. One in particular struck me as saying something that deserves at least a response from the Minister. It was an article in The Economist on 15 October 1988 relating to the activities in buying options in Consolidated Gold Fields before Minorco's £3 million bid for that company. The Economist was of the opinion that if the DTI had used sections 442, 444 and 445 of the Companies Act 1985, it could have taken action against the insider trading that The Economist claims was happening at that time. Unlike the other reference in The Economist this week, glowing reference is made to the activities of the Securities and Exchange Commission in the United States where nominee accounts can be blocked when there is some difficulty in establishing exactly who is operating on the market. ConsGold tried to get information from Liechtenstein and Liberian banks that were involved in the process but it was unable to do so, naturally enough.

Mr. Tim Smith

Instead of reading articles in newspapers, why does not the hon. Gentleman try reading the Companies Act 1985 and the Financial Services Act 1986? If he did so, he would discover that the Companies Act provides precisely the sort of power that he has been describing to disfranchise shares. I understand that that power was used only the other day when the identity of the beneficial owners could not be established. The Financial Services Act contains extremely draconian powers to deal with insider trading.

Mr. Griffiths

I was saying that, on the basis of the powers that are available in the Companies Act 1985, a claim was being made that the Department of Trade and Industry had failed to act appropriately in respect of ConsGold. I am asking the Minister to comment on the accusations that have been directed against the DTI.

Mr. Richard Holt (Langbaurgh)

Has the hon. Gentleman checked them out?

Mr. Griffiths

I am checking them out by asking the Minister to tell us exactly what the Department did at the time of the ConsGold affair. Did it think about implementing sections 442, 444, and 445 of the Companies Act? The Economist cannot be described as a mischief maker for the fair operation of free markets. It seemed that there was some weight in what it was reporting or that the Minister would be able to quell the fears to which it was drawing attention.

Mr. Holt

Has the hon. Gentleman checked this out?

Mr. Griffiths

I wish that the hon. Gentleman would rise and say something directly to me through you, Mr. Deputy Speaker, instead of muttering.

Mr. Holt

Did the hon. Gentleman carry out any research? Did he contact The Economist and make any attempt to understand that which he is talking about?

Mr. Griffiths

I know exactly what I am talking about. I am referring to the claims made in The Economist and I am asking the Minister to comment upon them. A substantial accusation has been made, for we know that the buying options amounted to about £15 million. Against that background, it seems appropriate to ask the Minister whether he thinks that something along the lines of the SEC of the United States would be a viable option on the European scene.

11.33 pm
Mr. Maude

This has been a short but enjoyable debate. I am grateful to hon. Members for the serious nature of their contributions to it.

My hon. Friend the Member for Stafford (Mr. Cash) spoke of the serious defects of the text at earlier stages. I am happy to be able to reassure him that by dint of careful negotiation those defects have been removed. As for Chinese walls, I can give him the assurance that knowledge under the directive is imputed only where it exists. The anxiety which was widespread and justifiable at an earlier stage has, I believe, been removed. My hon. Friend raised another anxiety about whether a company might be found to be guilty of insider dealing under the directive. The answer to that is no. That is another matter which has been resolved satisfactorily.

The hon. Member for Bridgend (Mr. Griffiths) asked about stabilisation. He properly referred to it as a legitimate practice in the market that exists by custom and practice. It is formally legitimised and closely regulated under the Financial Services Act 1986 or by regulations made under that Act. He will be relieved to know that further amendments to the text made during discussions remove the anxiety properly felt on that score. The hon. Gentleman made a few remarks about the explanatory memorandum that I submitted. He seemed to criticise it for being excessively lengthy, whereas my hon. Friend the Member for Stafford complimented me on the way—

Mr. Win Griffiths

What I said was that I found the memorandum extremely helpful but that it would have been more helpful if the changes described in the memorandum had been set alongside the appropriate parts of the amended directive so we could see clearly what changes had been made.

Mr. Maude

I am grateful to the hon. Gentleman for clarifying that.

My hon. Friend the Member for Stafford was complimentary about the way in which the explanatory memorandum was framed. The difficulty about the suggestion that was made is that the working papers on which discussions are held are confidential, and properly regarded as such by all the member states and by the Commission. That helps to ensure that member states are free to express their views in a sensible environment but means that it is often not possible to make draft texts available.

The hon. Member for Bridgend and my hon. Friend the Member for Stafford made a number of useful and interesting suggestions about the way in which the scrutiny programme might be improved, and I should like, if I may, to consider carefully whether we can give effect to them, because we aim to be as helpful as we can in making the process of scrutiny work.

Mr. Cash

My hon. Friend said that it was essential that we should maintain confidentiality, and gave reasons that we have heard so often before. Does he not agree that this matter is greatly overplayed and that it would be infinitely better if the texts were made available at an earlier stage? I am sure that he will be aware that the Leader of the House is considering whether that could be done. That would allow us—as happens in the Danish Parliament—the opportunity to examine the texts as they emerge so that we did not constantly have to deal with matters that were shrouded in secrecy.

Mr. Maude

I take my hon. Friend's point, and I undertake to consider it seriously, along with the other points that he made.

Let me deal with some of the issues raised by the hon. Member for Gateshead, East (Ms. Quin). She asked about the timetable for further progress. I believe that it is intended that the matter should be discussed by ECOFIN next Monday, when the United Kingdom will be represented by my right hon. Friend the Chancellor of the Exchequer. She asked about other countries' views. They must answer for themselves, although I can tell her that a number of countries have had difficulties along the way —many of them similar to the difficulties that I have outlined. Broadly speaking, those difficulties have been resolved, although some important issues remain unresolved. It may well be possible to resolve all those matters so that the measure can be agreed before very long.

The hon. Member for Gateshead, East asked who had represented the United Kingdom in the discussions. There have been discussions both in the working group and to some extent in COREPER. Ministers do not attend those meetings and it would be impossible for them to do so. Nevertheless, I have kept in close touch with the progress of those discussions. I have made sure that Ministers are informed fully and have directed the process of negotiation. It is by no means uncommon—as the hon. Lady, with her experience of these matters, will know—for something to be agreed without Ministers' attending meetings or discussing the measure formally at any stage. That does not mean to say that it happens without Ministers' informing the process of discussion, as I assure her they have in this case.

The hon. Lady referred to the role of the European Parliament and expressed pride that her colleague the MEP for Derbyshire had produced a report on insider trading. I have to tell her that the European Parliament considered the initial draft, which was, frankly, a mess: it was unworkable, it was too broad, it would not have been effective and it would have jeopardised the position of many perfectly respectable, legitimate and honest people. Yet the European Parliament warmly endorsed the proposal. She might consider whether it would be proper to temper her praise for the work of her colleague in that respect.

Ms. Quin

Has there not also been adverse reaction to the second draft because it goes wider than the first?

Mr. Maude

There have been many drafts. It has been a fact-moving negotiation. The proposal has been subject to constant amendment, broadly in the direction that we have sought, to narrow its scope so that it is both effective and enforceable.

The draft considered by the European Parliament was, by fairly common consent, thought to be hopeless. As I said, the European Parliament warmly endorsed it.

The hon. Lady marred her performance by mounting what she might claim to be an attack on the Government's performance in pursuing insider dealing. She badly misjudged it. She relied only on evidence of remarks by some commentators and she did her reputation no good. I have a very high regard for her abilities, but I feel bound to say that she did not inform herself properly.

Ms. Quin

There were a large number of articles. Can the Minister tell me that all those were wrong, that none of the cases mentioned involved insider dealing, that all prosecutions that should have been made have been made, and that no one has escaped the net of the Government's system? If so, I shall be delighted.

Mr. Maude

The hon. Lady has not referred to any case about which she can assert that insider dealing has occurred and not been pursued, and nor did any of the articles to which she referred. She relied on assertions that there was a certain amount of insider dealing that had not been subject to prosecution. It will not do to make such assertions without the slightest evidence to sustain them. The evidence relied on was the assertion that before some takeovers there were movements in share prices. I have shown conclusively that there is frequently a proper explanation for that—a company may properly be building a platform before announcing its bid. There is nothing improper in that. There is no evidence in anything to which the hon. Lady referred to show that a large amount of insider dealing is not being pursued. She should not make irresponsible assertions.

The directive, which I believe will be agreed before long, provides for a useful addition to our domestic law. It means that we can rely on sensible law being implemented and operated in other member states. It will be supplemented by the Council of Europe convention on insider dealing, which we hope to sign and ratify later this year. All in all, it is a good move forward in the fight against insider dealing. I ask the House to accept the motion.

Question put and agreed to.

Resolved, That this House takes note of European Community Documents Nos. 7310/87 and 8810/88 and the Supplementary Explanatory Memorandum submitted by the Department of Trade and Industry on 22nd May 1989 relating to insider trading; and supports the Government's view that a practical and workable Directive would demonstrate Member States' common desire to take vigorous action against insider trading.