AUTH App 1.21 Company statements, announcements and briefings

There is a general concern that the practice of companies issuing statements and giving briefings may involve a financial promotion. These arise sometimes as a result of requirements imposed by a listing authority or an exchange or market, AUTH App 1.4.14 G offers guidance on when such statements or briefings may amount to or involve an inducement to engage in investment activity. It indicates that whilst statements of fact alone will not be inducements, there may be circumstances where there is a promotional element which may amount to an inducement (typically to buy the company's shares). In the FSA's experience, it is rare for company statements or briefings to involve an invitation.

It is common practice for listed companies to brief analysts, usually at the time of the company's preliminary, interim and, if applicable, quarterly results and after the information has been issued to the market as a whole. Briefings may be made personally to a small or large number of analysts in a meeting or through a conference call. It is increasingly becoming the practice for listed companies to make their briefings available live to journalists and the general public on the basis that they may listen to or view, but not take part in, the briefing and any question and answer session. This is usually done through a conference call or a live broadcast (usually termed a webcast) through the company's website or the website of a specialist provider. Where such briefings include a financial promotion they must be approved by an authorised person (if they are non-real time financial promotions) or exempt.

AUTH App 1.21.4 G to set out the FSA's views on the potential relevance of certain exemptions to company statements and briefings. The exemptions are referred to in the same order as the Financial Promotion Order. In the FSA's view, these exemptions (whether alone or, where applicable, in combination) should enable most statements and briefings which involve financial promotions to be made by the company concerned without the need for approval. In particular, the FSA considers that article 69 (see ) should ensure that financial promotions made during the course of analyst briefings by listed and AIM companies are exempt and do not require approval. Some but not all of these exemptions apply equally to financial promotions which are communicated by a third party (for instance, a public relations adviser) on behalf of its corporate client. Those exemptions which are not available to a third party in such circumstances are those contained in article 20A (see ), 59 (see ), and 69 (see ).

Any statement or briefing which did not identify the company as an issuer of securities (for example, by referring to its securities) and which does not identify any other particular investment or provider of investments or investment services will be exempt as a generic promotion (see AUTH App 1.12.14 G). In practice, it will be unlikely that such a statement or briefing would involve a financial promotion but the article 17 exemption may be useful where any doubt arises.

Where statements or briefings are only available to analysts who are, or who work for, authorised persons (including overseas persons who would need to be authorised if they were conducting their business in the United Kingdom), article 19 will exempt any financial promotion that may be made (see AUTH App 1.12.21 G). Furthermore, where a financial promotion is made in the course of an interactive dialogue with an analyst and is addressed to him, the financial promotion will be regarded as having been made to that analyst irrespective of who else may hear or view it (article 6(b) of the Financial Promotion Order (see AUTH App 1.6.9 G). For example, where a representative of the company is responding to a particular question article 19 would then apply. This is not to say that every time a company representative answers a question his response, if it involves a financial promotion, will be addressed to the questioner for the purpose of article 6(b). This will depend upon the particular circumstances.

AUTH App 1.12.32 G contains detailed guidance on the exemption in article 20A. The exemption is capable of applying to financial promotions in a company statement or briefing where they are communicated through a webcast if the website is a regularly updated news or information service. For this to be the case, the website must be a service provided to persons who use it (so it must not, for example, simply be an advertising vehicle) and that service must be one of providing news or information which will be updated regularly. This is capable of applying to some corporate websites. For example, the website of a company may amount to a service of information about the company's activities, services and products which is regularly updated and the webcast may be seen as part of that service. Not all corporate websites will qualify, however, and each website must be considered on its merits. Company representatives seeking to use this exemption will need to bear in mind any restrictions on the making available of certain information to which they may be subject (for example, under listing rules).

Article 28 applies to one-off non-real time and solicited real time financial promotions. Article 28A applies to one-off unsolicited real time financial promotions. It is possible that articles 28 or 28A could apply to financial promotions in company statements or briefings if they were to be made other than to an analyst or journalist. In this respect, the comments made in AUTH App 1.14.3 G about one-off financial promotions are relevant.

Article 43 applies to non-real time and solicited real time financial promotions made by a company ('C') to persons who, in broad terms, are:

1. (1)

   members or creditors of C or a group member of C ('G');

2. (2)

   entitled to a relevant investment issued by C or G;

3. (3)

   entitled to become a member of C or G; or

4. (4)

   entitled to have transferred to them title to a relevant investment issued by C or G.

The financial promotion must relate only to relevant investments issued or to be issued by C or G or, in certain circumstances, another person (see AUTH App 1.21.9 G (2). C and G must not be open-ended investment companies.

A 'relevant investment' in article 43 means:

1. (1)

   shares or debentures; and

2. (2)

   warrants and certificates representing certain securities relating to (1) and issued by G or a person acting on behalf of or under arrangements made with C.

Article 43 allows a company to communicate a financial promotion to its shareholders about rights issues or a cash offer by a third party for their shares. It also allows a company to communicate with its creditors about restructuring debt obligations. It does not, however, exempt persons who may make financial promotions on behalf of a company.

Article 47 will exempt financial promotions in company statements or briefings where they are made to members of the press and may be combined with article 19 (Investment professionals). This means that companies will only need to look for other exemptions where the recipients of their financial promotions are persons other than analysts or journalists or both.

Article 59 is capable of applying to financial promotions in company statements and briefings where they are accompanied by:

1. (1)

   the whole or any part of the annual accounts of the company (provided it is not an open-ended investment company); or

2. (2)

   any report prepared and approved by the directors of such a company under section 234 and 234A of the Companies Act 1985 or corresponding legislation in Northern Ireland or in another EEA State.

In this respect, the FSA considers that the annual accounts (or part of them) or directors' report accompanies a financial promotion where it is made available to the recipients of the financial promotion at the same time. The financial promotion should refer to the accompanying material. For example, the accounts or report may be available on a company's website and referred to in a financial promotion on that website. Or they may be contained in or enclosed with a written communication (including an e-mail) or handed over during a meeting or discussion.

Article 59 imposes certain conditions.

1. (1)

   The financial promotion must be an inducement and not be an invitation or amount to advice to acquire or dispose of an investment.

2. (2)

   The inducement must not relate to any investment other than shares or debentures of the company making the financial promotion (or a member of its group) or warrants relating to or certificates representing such shares or debentures.

3. (3)

   If the financial promotion contains any reference to past prices of or yields on the company'ssecurities as referred to in (2), it must be accompanied by a statement that past performance cannot be relied on as guide to future performance.

Article 67 exempts any financial promotion other than an unsolicited real time financial promotion which relates to shares, debentures, government and public securities, warrants or certificates representing certain securities which are permitted to be traded or dealt in on a relevant market. A relevant market for the purposes of article 67 is one which meets the criteria in Part I of, or is specified in or established under the rules of an exchange specified in Parts II or III of, schedule 3 to the Financial Promotion Order. This includes recognised investment exchanges and EEA regulated markets that are exempt persons under article 36 of the Exemption Order, together with various other overseas markets (including OFEX (UK)). The financial promotion must, however, be required or permitted to be communicated by the rules of the market or by a body which either regulates the market or regulates offers or issues of investments to be traded on the market.1

The reference to financial promotions which are permitted to be communicated relates, in the FSA's opinion, to something which is expressly permitted rather than simply not expressly prohibited. Article 67 itself does not specify any particular medium for communicating required or permitted material. So, it will be enough for the financial promotion to be part of a document which is itself required or permitted to be communicated (such as reports or financial statements). Market rules or usual market practice may require the financial promotion to be communicated in a particular form or by a particular medium. However. the exemption will still apply if the financial promotion is communicated in a different form or by a different medium provided that its substance is unchanged. But article 67 will not apply to a financial promotion simply because it is included in another document which is required or permitted where the financial promotion amounts to additional information to that which is required or permitted. Neither does article 67 specify what form permission can take. In the FSA's view, however, permission would need to be given either in rules or guidance applicable to the market in question.

Article 67 refers to an investment which is permitted to be traded or dealt in on a relevant market. In the FSA's opinion, this includes a situation where a class of securities is traded on a relevant market but the financial promotion relates to new securities of that class which have not yet themselves been issued or started trading. Where securities of that class have not yet been admitted to trading on a relevant market, article 68 may apply: see AUTH App 1.21.16 G.

Article 68 applies where the financial promotion relates to securities which have not yet been admitted to trading but for which application has been or is to be made. It exempts a non-real time financial promotion or a solicited real time financial promotion which a relevant EEA market requires to be communicated before admission to trading can be granted. A relevant EEA market for this purpose is a market with its head office in an EEA State and which meets the conditions in Part I of, or is specified in or established under the rules of an exchange specified in Part II of, Schedule 3 to the Financial Promotion Order. Article 68 also requires that the financial promotion be one:

1. (1)

   which, if it were included in a prospectus issued in line with Part II of the Public Offers of Securities Regulations 1995 (or, where it is an outgoing electronic commerce communication, provisions corresponding to that Part under the law of another EEA State), would be required to be communicated by those Regulations (or other provisions); and 1

2. (2)

   which is not accompanied by any information other than that information which is required or permitted to be published by the rules of the relevant EEA market.

Article 69 is similar to article 59 in the conditions it imposes (see AUTH App 1.21.12 G). These are two main differences between article 69 and article 59.

1. (1)

   Article 69 does not apply to unsolicited real time financial promotions.

2. (2)

   The requirement in article 59 that the financial promotion be accompanied by accounts or a report is replaced in article 69. It is replaced by a requirement that shares or debentures of the company or its parent undertaking (or warrants relating to or certificates representing such investments) are permitted to be traded or dealt in on a relevant market (relevant market having the same meaning as in article 67 - see AUTH App 1.21.13 G).

Article 69 exempts financial promotions about 'investments issued by' a company or a member of its group. An issue arises about whether the term 'investments issued by' a company includes investments which are 'to be issued by' a company. In the FSA's view, there is a case for arguing that this is the effect although the matter is not beyond doubt. Article 69 replaces an earlier exemption made under section 58(3) of the Financial Services Act 1986 and which applied to investments which were to be issued. The FSA understands that article 69 was not intended to be narrower in scope that it predecessor. The FSA considers that the better view is that article 69 applies where investments are 'to be issued'.

In the FSA's opinion, companies whose securities are permitted to be traded or dealt in on a relevant market should be able to make good use of the article 69 exemption. But such companies will need to ensure that they meet the specific requirements in article 69(3) to (6). In very general terms, a financial promotion will comply with these requirements if:

1. (1)

   the only reason it is a financial promotion is that it contains an inducement about certain investments issued by the company or a group member and which does not amount to advice to any person to acquire or dispose of such investments; and

2. (2)

   should it contain any reference to past prices of or yields on the company's investments, it is accompanied by a statement that past performance cannot be relied on as a guide to future performance.

Article 71 applies to a non-real time financial promotion included in:

1. (1)

   listing particulars;

2. (2)

   supplementary listing particulars;

3. (3)

   a prospectus approved under listing rules under section 84 or 87 of the Act;

4. (4)

   a supplementary prospectus approved under listing rules made under section 81 of the Act (as applied by section 86 or 87); and

5. (5)

   any other document required or permitted to be published by listing rules under part VI of the Act.

The comments in AUTH App 1.21.14 G about when something is required or permitted to be published apply also to (5).

A requirement common to the exemptions in articles 59, 67 and 69 is that the financial promotions must not relate to investments other than those issued by the company or a member of its group. The FSA is aware that there is concern about comments made in company statements or briefings. This is that they may be held to be inducements to acquire or dispose of, or exercise rights conferred by, an investment issued by a third party. For example, traded options on or certificates representing the company's shares. AUTH App 1.4 sets out the FSA's general views on when a communication is an inducement. It appears to the FSA that, for a company statement or briefing to involve an inducement to persons to, for example, exercise rights under a traded option written on or acquire certificates representing the securities, it must seek to persuade or induce persons specifically to do that. The mere fact that a person reading, hearing or viewing a company statement or briefing containing an inducement to acquire the company'ssecurities may be influenced to exercise traded options which he holds is not enough to make it an inducement to exercise those rights.