The guidance was issued after ESMA and national regulators observed “high volatility episodes” in EU share prices, some of which took place shortly after pre-close calls with analysts.

By James Inness, Rob Moulton, Nicola Higgs, and Jonathan Ritson-Candler

Key Takeaways:

  • ESMA recently published guidance providing non-exhaustive indicative best practices for issuers’ conduct of calls with analysts shortly ahead of closed periods.
  • ESMA is seeking to address concerns that inside information may be shared during pre-close calls.
  • Since the UK has similar pre-existing guidance, now is a good time for issuers to review their practices relating to pre-close calls. We set out some practical guidance below.

On 29 May 2024, the European Securities and Markets Authority (ESMA) released a statement reminding issuers of their obligations under the EU Market Abuse Regulation (MAR) not to disclose inside information during calls with analysts that take place shortly before an issuer goes into a closed period under MAR. The statement defines these calls as “pre-close calls”.

MAR prescribes “closed periods” in the 30 days before the publication of half yearly and annual results. During that period, “persons discharging managerial responsibilities” — namely, directors — are presumed to possess inside information (the forthcoming results) and are prevented from trading in the issuer’s securities, subject to limited exceptions. Whilst not prescribed in MAR, given the increased sensitivity around the control of inside information ahead of the issuer’s results, and to avoid any perceived or actual risk of disclosure, many issuers will also refrain from making any public comments during closed periods. Therefore, to ensure analysts are sufficiently up to speed about the issuer ahead of the publication of results, many issuers will arrange pre-close calls with analysts.

ESMA’s statement comes in the wake of media coverage which made the link between pre-close calls and subsequent volatility in EU issuers’ share prices shortly after pre-close calls. The speculation was that issuers may have disclosed inside information to the analysts during those calls. ESMA notes that pre-close calls “carry inherent risks of inadvertent unlawful disclosure of inside information increased by the lack of publicity of these events and the absence of records of what was presented”.

Notably, the risks inherent to pre-close calls have been discussed since before MAR came into effect in 2016 and were highlighted in UKLA guidance which the then FSA (now FCA) issued in 2002: “[a]s these meetings normally only involve the company and the analysts it is difficult to refute allegations that there has been a selective dissemination of unpublished price sensitive information”.

As a result, ESMA reiterates that issuers should be alive to the risk of potential unlawful disclosure of inside information. They should, therefore, have: (i) effective systems and controls to mitigate the risk of such occurrence; and (ii) a plan for what to do if a disclosure is made (for example, whether it would trigger a public announcement).

Therefore, whilst the risks are not new and neither is the overarching guidance applicable to issuers (and notably to their advisors), ESMA has set out indicative good practices it has observed being adopted by some EU issuers to manage this risk. We also of the view that despite new ESMA guidance no longer being applicable in the UK, given the FSA guidance remains in effect and raises similar controls, it is prudent for all issuers to consider the ESMA statement.

It is, therefore, a good juncture for issuers to consider revisiting their procedures around pre-close calls, albeit we do not think it necessary for issuers to adopt all of ESMA’s identified good practices in order to effectively mitigate or obviate the risk of unlawful disclosure of inside information.

Whilst both ESMA and the FSA (now FCA) discuss the benefits of opening up pre-close calls to allow journalists, members of the public and other non-analyst participants to join (in a listening only capacity rather than to participate), the FSA in particular acknowledged that this is not a silver bullet (as it may cause issuers to still have analyst only calls in any event) and may also cause greater complexity from a financial promotions perspective.

We therefore think a practicable starting point for issuers in-scope of EU MAR is to review ESMA’s good practices and, for issuers in scope of UK MAR, review it together with the FSA’s (now FCA) guidance, and use these as a checklist for reviewing and either refreshing or putting in place internal guidance governing the content and conduct of pre-close calls.

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Indicative Pre-close Call Guidance:

  • Requiring that a thorough assessment be carried out to ensure that what will be presented during a pre-close call does not contain any inside information
  • Mandating internal records are retained of what was presented during pre-close calls
  • Disclosing the fact of upcoming pre-close call in advance along with key information to be disclosed at the briefing. The FSA guidance says, “[w]e believe that this practice is highly beneficial, and more listed companies should consider adopting it.”
  • Setting clear parameters for what can be discussed during the call. For example:
    • Discuss key trends affecting the issuer’s performance
    • Discuss key trends affecting the issuer’s sector
    • Discuss historic results or data points that have already been made public
    • Do not discuss or allude to upcoming financial results (or non-public data points used in the preparation of results)
    • Do not discuss non-public milestones or metrics that have been met or missed
    • Avoid discussing event-driven matters, such as non-public M&A plans or management changes