The proposed amendment would clarify that, in a limited set of circumstances, a financial institution admitted to trading on a regulated market (an ‘issuer’) that was in receipt of liquidity support from the Bank of England or another central bank may be able to delay the public disclosure of this fact.
That proposal, submitted for scrutiny in a consultation paper published by the FSA earlier this week.
The tripartite authorities – that is, the FSA, the BoE and the Treasury – are clearly keen to avert another Northern Rock-like scenario. The intention is to keep secret liquidity support. There are of course, obvious questions about the scope of those proposals. Is, for example, the BoE’s special liquidity scheme included? In which case, would the fact that most of the UK banking sector is on “liquidity support” be, hereafter, priviliged information.
The big question though, is whether the FSA scheme is MAD compliant.The EU’s Market Abuse Directive already stringently lays out the criteria which allow an institution to withhold information from the market.
Under those, an issuer may delay disclosure if it is in “grave and imminent danger” but only where “the outcome of those negotiations would be likely to be affected by disclosure.”
Which is more restrictive than it first might seem. Bailouts from the BoE, for example, aren’t really covered, because their disclosure – as in the case of Northern Rock – doesn’t stop them going ahead.
There is then, a need for quite a lot of interpreting on the FSA’s part. A new disclosure regime wouldn’t sit comfortably with MAD.
Points 2.6 to 2.11 of the FSA’s paper try to explain ways in which a new non-disclosure regime might, elliptically, be squared with the EU, but point 2.12 is a grudging admission that ultimately, it might all be a case of square pegs and round holes:
MAD, as currently drafted, only provides a conditional ability to delay the disclosure of inside information. If the ability to delay is to be made unconditional or less constrained, the only option is to amend the Directive. The European Commission is undertaking a review of the MAD in 2008 and this could provide the opportunity to consider whether there should be a change to the Directive’s provisions in this area.
Related links
No truce in the bank wars – FT Lombard