COMMONS AMENDMENT (Hansard, 27 March 1980)

§ Viscount TRENCHARD

My Lords, I beg to move that the House doth agree with the Commons Amendment No. 215. I will, with the permission of the House, speak at the same time to Amendment No. 216. These are the first two clauses, perhaps the most important of the first of the clauses, in the insider dealing section of the amendments, which was Clause 5 in the other place, and to Amendment No. 215 a number of amendments have been tabled. These two clauses are, as I say, concerned with insider dealing and there is wide agreement, both in this House and outside, that insider dealing should be made a criminal offence.

Noble Lords will no doubt recall that when this Bill was last before us we said that the Government's view was that insider dealing was wrong and should be discouraged and condemned in every way possible. We pointed out, however, that the task of sorting our the problems was not a straightforward one and that the dangers involved in getting the legislation wrong were very great. We therefore resisted the attempt of noble Lords opposite to include in this Bill provisions on insider dealing which we considered carried with them a real risk of doing damage to desirable market functions and normal investment functions. We said we would be reconsidering the topic and undertaking further consultations before bringing forward legislation. That we have done. We issued a Consultative Document in October of last year which took the form of draft clauses. These commanded considerable support and, as a result, as I have said, the clauses were introduced, with minor modifications, during the Committee stage in another place.

They are different in a number of respects from the 1978 Bill. One of the central issues is, of course, the definition of what we can loosely term inside information. The 1978 Bill contained a very wide definition: it was simply information which the individual knew was not generally available but which would, if it were 1120 so available, be likely materially to affect the price of those securities. "Generally available" was at that time to be defined by an amendment put forward by the Government as: available on request to those members of the public likely to take an interest in it". We felt that this was imprecise, and that it would have hindered, or prevented entirely, legitimate activities. Indeed, this was the view of a considerable number of bodies who criticised the definition, among them the Council for the Securities Industry, the Confederation of British Industry, the Engineering Employers' Federation, the Industrial Society, and the Law Society.

We have therefore drawn the definition much tighter in our new clauses; in particular in subsection (1)(a),(b) and (c) of the new clause contained in Amendment No. 215. There are three elements, all of which have to be met. First, there is information which the individual holds by virtue of being connected with the company. We are therefore focusing now on insiders, and their tippees, who receive certain information because of their employment, or connection with the company. The second element is that it is information which it would be reasonable to expect a person in the position by virtue of which he is connected with the company not to disclose, except for the proper performance of the functions attaching to that position. What this means is that we are talking of information which should be kept in confidence, or used only for the purposes of the company, for example, information which could quite properly be made available generally would therefore not be inside information. The third part of the definition is that it is information which the individual knows is unpublished price-sensitive information. The key elements here are a restriction to specific matters and a better test of price sensitivity.

I should like to say one or two things about subsequent clauses relating to insider dealing. The definition is set out in the interpretation clause, which is contained in Amendment No. 220, which we shall be considering shortly. We have omitted the requirement in face-to-face transactions of disclosure of an insider's connection with a company. We felt that that was an unsatisfactory approach, 1121 and instead we have extended the prohibitions to cover certain off-market deals. This is provided for in Commons Amendments Nos. 217 and 218. Finally we have dropped the powers to appoint inspectors to investigate suspected insider dealing cases. We do not believe that such special powers are necessary or justified.

These are significant changes from the previous Act. However, we should not overlook the common ground, the central issue of which is of course that these clauses will make insider dealing a criminal offence. The penalties are spelt out in Commons Amendment No. 219. I believe that these clauses deserve the support of the House, and I trust that they will receive it. I beg to move.