Background

EU market abuse rules prohibit investors and other market participants from dealing in securities while in possession of “inside information” – which broadly means information that is precise, not public and sufficiently important that it could potentially affect the price of the relevant security.  In practice, the question of when information becomes “public” is critically important: once information is made public, the restriction on dealing while in possession of it falls away.  Until the recent decision of the Court of Justice of the European Union in Brännelius, was generally assumed that information could become public in a range of different ways, provided it was genuinely available to the market.  The judgment calls into question that assumption and raises potentially significant consequences for issuers, investors and advisers.

A. A surprising judgment

The Court of Justice of the EU has delivered a surprising judgment in Brännelius (TK and OP v Riksåklagaren) (Case C-229/24), on the circumstances in which information ceases to be “non-public” for the purposes of the Market Abuse Regulation (EU) 596/2014 (“MAR”).  The ruling creates uncertainty for issuers and investors since, under a literal and general interpretation of the judgment, it restricts considerably the ways in which inside information must be disclosed, held and cleansed, with ramifications for existing market practices in the areas of information disclosure, investment research and dealing compliance.

The judgment was delivered in response to two questions posed by the Swedish Supreme Court (Högsta domstolen) in its request for a preliminary ruling (a procedure in cases where the interpretation or validity of an EU law is in question):

1. Is it necessary for public disclosure to have taken place in the manner referred to in Article 17 of the market abuse regulation in order for information to be considered to have been made public in accordance with Article 7(1)(a) of the regulation?

[CJEU response: “… in order for information to be considered to have been made public and thereby to have ceased being ‘inside information’ within the meaning of that provision, it is necessary for public disclosure to have taken place in the manner and in compliance with the requirements laid down in Article 17 of that regulation and Article 2(1) of Implementing Regulation 2016/1055” (para. 68 of C-229/24)]

2. If public disclosure can take place in another manner, what circumstances should be taken into account in determining whether information should be considered to have been made public within the meaning of Article 7(1)(a)?

[CJEU response: “In the light of the answer given to the first question, there is no need to adjudicate on the second question.” para. 70 of C-229/24)]

B. Facts of the case

The timeline and background to Brännelius can be summarised as follows:

1. In the spring of 2018, a Swedish municipal company conducted a tendering process for electric buses and charging stations. Two companies submitted tenders, one of which was the Nordic Growth Market listed company, Hybricon Bus Systems AB. A further three companies had registered interest in the tendering procedure but were ineligible.

2. At 2.34pm on 14 May 2018, the municipal company notified all five participating companies (and 22 other persons who had declared their interest in following the tender process) via email that the contract had not been awarded to Hybricon and had instead been awarded to the other tenderer.

3. At Hybricon the email was received by an operating officer who had main responsibility for contacts with the municipal company concerning the tendering procedure. Shortly thereafter, the operating officer sent a message to OP urging him to sell his shares in Hybricon. OP passed on the information to TK, who also owned shares in the company.

4. At 2.37pm on 14 May 2018,TK placed an order to sell 73,000 shares in Hybricon. A few minutes later, at 2.40pm, OP sold 31,000 shares in the company.  

5. At 3.22pm on 14 May 2018,a press release was issued by Hybricon announcing that it had been unsuccessful in the tendering process. Hybricon’s share price fell sharply immediately afterwards. By disposing of their shares in Hybricon prior to the announcement, OP and TK had limited their losses.

On appeal to the Swedish Supreme Court, it was argued that the information about Hybricon’s unsuccessful tender bid was not inside information under Article 7 of MAR, since the award decision became a public document at the moment it was sent and was available to the public under the broad right of access to public documents under Swedish law. 

Under Swedish law, a person who requests a public document must, immediately or as soon as possible, be granted access to the document.  The public authority is also obliged – on payment of a fee – to provide a transcript or copy of the document upon request.  This was the background to the first question raised by the Swedish Supreme Court – i.e. whether the information had become “public” by reason of the Swedish law permitting public access to official records and was therefore accessible upon request.

C. How to interpret the CJEU’s conclusions

The Court’s key conclusions are set out in section A above.  Since the judgment was delivered, these conclusions have been widely debated by commentators.   It has been argued (see Hansen, Lidman and Zackrisson, Comment on C-229/24, Brännelius) that the ruling be interpreted in two different ways: 

(i) Broad interpretation: in every case and always, information is to be regarded as non-public under Article 7 of MAR until it has been disclosed by the issuer of the relevant securities according to Article 17 of MAR; or 

(ii) Narrow interpretation: the fact that the information had been accessible to the public due to the very liberal Swedish law on public access to official records did not in itself make the price-relevant information “public” within the meaning of Article 7 of MAR. This requirement was only met once the information had been publicly disclosed by the issuer according to Article 17 of MAR later that same day.

From the perspective of a market participant, interpretation (i) represents a substantial increase of the regulatory burden on issuers and investors, since it prescribes a single, narrow avenue by which inside information may become public.  This appears to import the issuer disclosure mechanism that was designed for Article 17 into the definition of public information under Article 7, even though Article 7 has materially broader subject-matter and scope than Article 17.  In other words, whether or not the information is accessible or known to a broad section of public in some other manner, it only becomes public once it has been published by the issuer in accordance with the requirements of MAR. 

Interpretation (ii) is more case-specific (see Giltjes and Pijls, When Is Information Public Under the European Market Abuse Regulation?). Under this interpretation, neither the email notification to interested parties nor the accessibility of the information under Swedish law made the information public for the purposes of MAR, and only the issuer’s subsequent press release of the outcome of the tender was sufficient to make it lose the attributes of inside information.  The wording of the judgment supports this distinction:

“A distinction should be drawn between, on the one hand, information which is accessible to the public and made available to a person individually further to a request to that effect and in compliance with a specific procedure provided for that purpose and, on the other hand, information made public, disseminated simultaneously to an unlimited and indeterminate circle of persons in a non-discriminatory manner, in accordance with the requirements laid down in Article 17 of that regulation and Article 2(1) of Implementing Regulation 2016/1055.” (para. 67 of C-229-24)

Unfortunately, while academic experts have argued that there are strong context and policy arguments in favour of the narrower interpretation, the literal wording of the operative part of the Brännelius judgment argues strongly in support of a more general interpretation.  This conclusion can be contrasted with the Opinion of Advocate General Kokott, which expressly rejected Article 17 as the exclusive route by which information could become public.  

D. Implications for market practice

If the literal reading is correct, Brännelius creates difficulties that extend well beyond issuer disclosure.  While the disclosure obligation under Article 17 is limited to disclosing inside information that directly concerns the issuer, the definition of inside information in Article 7 relates more broadly to information relating “directly or indirectly, to one or more issuers or to one or more financial instruments”.  This indicates a potentially significant category of inside information generated by third parties – for example, investors, bidders and investment research analysts – who may consider themselves to be restricted from dealing unless the issuer in question chooses to make a “cleansing” announcement. 

For example, a hostile bidder in an Irish Takeover Rules-governed transaction may consider itself prohibited from making a Rule 2.4 announcement of a possible bid unless the target chooses to make its own announcement.  To take another example, an analyst who prepares investment research from alternative or limited-access sources may consider that he or she cannot trade while in possession of information that meets the other criteria (precision, price sensitivity) that characterise inside information.

It is possible that legislation or case law will overrule or limit the Brännelius precedent.  Until then, market participants cannot safely assume that regulators and national courts will adopt the narrower interpretation that has attracted academic endorsement.  For now, the distinction between information that is publicly accessible as a matter of fact and “made public” for the purposes of MAR has become an important one.