The Model Code (an Annex to the Listing Rules), is specific that a director intending to use shares of a company as security requires clearance from the company before doing so but does not mandate disclosure to the market. The FSA can see no basis on which a director could legitimately avoid seeking clearance where his or her shares are to be used as collateral for a financing transaction. We expect listed issuers to deal with breaches of the Model Code by their directors.
Grants of security over shareholdings also fall within the Disclosure and Transparency Rules (DTR). Persons discharging managerial responsibilities ("PDMRs"), such as directors, and their connected persons should therefore disclose such transactions to their companies, which in turn should make disclosure to the market.
However the rules in DTR are derived from the EU Market Abuse Directive which does not define specifically which transactions fall within its disclosure requirements. As a result, there are different practices in different European markets in respect of the disclosure of granting of security over shares. We acknowledge that this has led to a degree of uncertainty among market practitioners in London about the exact requirements. The FSA has therefore concluded that it will not pursue any enforcement action for cases where directors and their firms have not hitherto made the necessary DTR disclosures. Following this clarification, the FSA expects all outstanding disclosures to be made by 23 January.
The clarification is contained in a statement published on its website.
