The 'use or possession' debate revisited--Spector Photo Group and insider trading in Europe

Abstract

European law commenced regulating insider law in 1989 with the EU Directive on Insider trading. The Member States, under the provisions of that initial Directive, were to prohibit any insider ‘from taking advantage of that information with full knowledge of the facts by acquiring or disposing of … transferable securities of the issuer to which that information relates’. Clearly, this formula endorses a strict ‘use’ standard, requiring the insider not only to ‘use’ his inside information but to ‘take advantage’ of it.1 In the light of low enforcement rates in most Member States, the initial European provisions were substantially altered by the EU Directive on Insider Trading and Market Manipulation 2003/6/EC (‘Market Abuse Directive’). While the initial Directive of 1989 required the insider to take advantage of inside information with full knowledge of the facts, there is less to prove under the new Market Abuse Directive. It requires that the Member States shall prohibit an insider who ‘possesses inside information from using that information by acquiring or disposing of, or by trying to acquire or dispose of … financial instruments to which that information relates’. The European legislator’s intention was to lower the threshold for prosecuting illegal insider trading, softening the strict use standard formerly employed. The European Court of Justice’s (ECJ) recent decision in ‘Spector Photo Group’ seems to move one step further, interpreting the Market Abuse Directive in a manner which implies that the element of ‘use’ is present as soon as an insider holds inside information and makes a relevant transaction.2