Format revised and guidelines updated in April 2012.
These guidelines have been drawn up by the GC100 Listing Rules Working Group to assist members of GC100 to implement procedures for the purposes of complying with the requirements of (i) the Listing Rules in relation to dealings being restricted in accordance with the Model Code and (ii) the Disclosure and Transparency Rules in relation to the disclosure of dealings in a company's securities by directors and other senior managers.
These guidelines have been seen by the FSA which has agreed to add the following wording: "The FSA has not reviewed these guidelines but believes that the provision of material of this nature by industry bodies is a helpful initiative".
For GC100's guidelines on:
These guidelines, which do not necessarily reflect the views of all individual members of the GC100 or their employing companies, have been produced for guidance only. It is the responsibility of individual companies to ensure that they understand, and comply with, the Listing Rules (www.practicallaw.com/7-107-6774) and Disclosure and Transparency Rules (www.practicallaw.com/8-209-4955) (DTRs) and to take specific external advice (legal or otherwise) as they deem appropriate.
Nothing in these guidelines or the accompanying appendix represents advice by the GC100 or any of its members or any of the participants in the Listing Rules Working Group to any person and none of the GC100, its members and the participants in the Listing Rules Working Group accepts any liability to any person for or in respect of the guidelines.
The Listing Rules require listed companies to impose restrictions on dealings in the company's securities by persons discharging managerial responsibilities (www.practicallaw.com/4-200-9271) (PDMRs). These restrictions are set out in the Model Code (LR 9, Annex 1).
The Model Code:
Requires those subject to restrictions to obtain clearance before dealing.
Prohibits dealings during "close periods" (prior to release of results).
Prohibits dealings while there is any inside information (www.practicallaw.com/8-200-9269) in relation to the company.
The relevant Listing Rules are LR 9.2.8R and LR 9.2.9G.
The Model Code applies to PDMRs only, although a company may choose to apply its dealing policy to a wider category of people. (Previously, the Model Code also applied to all employees whose name was required to be placed on an insider list under the DTRs.)
A PDMR is:
A director of the relevant issuer.
A senior executive of such issuer who has:
regular access to inside information relating, directly or indirectly, to the issuer; and
power to make managerial decisions affecting the future development and business prospects of the issuer.
This is the same as the definition of PDMR for the purposes of the disclosure of dealings obligations in DTR 3. Further guidance on the definition of PDMR is contained in the Appendix.
The Model Code applies to dealings in securities. "Dealings" is defined widely and includes, for example:
Entering into, terminating or assigning a stock lending agreement in respect of securities of the company.
The grant, acceptance, acquisition, disposal, exercise or discharge of an option over securities of the company.
Granting a charge, lien or other encumbrance over securities of the company.
Entering into a contract (including a contract for difference) the purpose of which is to secure a profit or avoid a loss by reference to fluctuations in the price of any of the securities of the company.
Any other right or obligation, present or future, conditional or unconditional, to acquire or dispose of any securities of the company.
The Model Code contains a list of transactions in relation to which clearance is not required. The list of exempt dealings includes:
Taking up rights in a rights issue or selling nil-paid entitlements to take up the balance of entitlements in a rights issue.
Accepting a takeover offer.
Dealings in the units of an authorised unit trust or in shares in an open-ended investment company.
Bona fide gifts by a third party to a director or a PDMR.
Clearance to deal can be given to:
The chairman by the CEO or, in his absence, the senior independent director or board committee chairman nominated by the CEO or other officer nominated by the CEO.
The CEO by the chairman or, in his absence, the senior independent director or board committee chairman nominated by the chairman or other officer nominated by the chairman.
Any other director or the company secretary by the chairman or a director designated by the board.
Any PDMR who is not a director by the company secretary or a designated director.
If the roles of chairman and CEO are combined, clearance for dealings by the individual holding that role must be given by the board as a whole.
Clearance to deal must be given by the relevant person within five business days of a request being made and dealing then must take place as soon as possible and in any event within two business days of clearance being obtained.
Clearance must not be given during a close period, being:
The period of 60 days immediately preceding a preliminary announcement of the company's annual results (or, if shorter, the period from the end of the relevant financial year up to and including the time of announcement); or
The period of 60 days immediately preceding the publication of its annual financial report (or, if shorter, the period from the end of the relevant financial year up to and including the time of such publication); and
Before publication of the half-yearly report, the period from the end of the relevant financial period up to and including the time of such publication. In addition, if the company reports quarterly, the close period is also the period of 30 days immediately preceding the announcement of the quarterly results (or, if shorter, the period from the end of the relevant financial period up to and including the time of the announcement).
Clearance must also not be given in any period in which there exists any matter which constitutes inside information in relation to the company.
A director or other PDMR must take reasonable steps to prevent dealings by, or on behalf of, his connected persons on considerations of a short-term nature or during a close period. He must also advise his connected persons and investment managers acting for him of the name of the listed company of which he is a director or other PDMR, the close periods in which they cannot deal and that they must inform the company concerned immediately after they have dealt in the company's securities. "Connected persons" has the same meaning as used in DTR 3 (see section 3.3: Who is a connected person of a director or other PDMR?).
Penalties for breach of the Model Code are the same as for a breach of the DTRs. The FSA may impose either a fine or a public censure on the company (for example, if the company failed to enforce the Model Code) or on any person who was a director of the company at the material time if he was "knowingly concerned in the contravention". If any director fails to seek clearance for a relevant dealing due to a lack of understanding of his duties, the company may also be held responsible by the FSA for breach of Listing Principle 1 as well as the individual director being liable for failure to make the disclosure.
Individuals bound by the Model Code must seek clearance to deal in the company's securities. Companies must require the relevant individuals to whom the Model Code applies to comply with the Model Code and companies must take all proper and reasonable steps to secure their compliance. In practice, this means that companies need to ensure the restrictions on dealings are widely understood by their employees, that the relevant individuals are aware that the restrictions apply to them and that systems are in place to apply the correct clearance procedures under the Model Code.
Companies may wish to undertake the following steps:
Update company's code. Check that the company's code of dealing is no less rigorous than the Model Code.
Put in place effective systems and controls. Ensure that the company has systems and controls in place to identify and manage inside information (see GC100: Listing Rules Guidelines Part I: Guidelines for establishing procedures, systems and controls to ensure compliance with the Listing Rules (www.practicallaw.com/9-519-0929) and GC100: Listing Rules Guidelines Part II: Guidelines on the requirement to maintain insider lists (www.practicallaw.com/4-518-7156)).
Organise training. All directors and PDMRs should be aware of and understand their obligations under the Model Code. Listing Principle 1 emphasises the importance of ensuring that directors understand their responsibilities and obligations as directors. Consider requiring each director and PDMR to acknowledge that they are aware of and understand their obligations under the Model Code. Consider also the need for refresher training.
Require notifications to be made. Where permission to deal is given, require the relevant person to notify the company in writing of the dealing and the date of the dealing once it has taken place.
Identify designated director. Identify a designated director for clearance purposes and ensure that all of the relevant people know who he is.
Identify a contact person/team. Identify a contact person/team with detailed knowledge of the Model Code to answer questions from directors, other PDMRs and their connected persons.
Identify connected persons. Identify the connected persons of the directors and other PDMRs and periodically update and review the list of them and remind directors and other PDMRs that they are required to take steps to prevent dealings by them during prohibited periods and to ensure that their dealings are disclosed to the company under the DTRs.
Maintain records. Ensure that clear written records are maintained of all applications for dealing and their outcome.
Memorandum on share dealing code. Produce a memorandum on the Model Code or the company’s share dealing code and give it to directors, other PDMRs and any others whom the board has decided should be subject to the Model Code. Require each person receiving such memorandum to acknowledge receipt of the memorandum in writing.
DTR 3 requires the following persons to notify the company of any dealing on their account in shares of the company (or related securities):
Directors.
Other PDMRs.
Each of their connected persons.
This requirement is in addition to the requirement under DTR 5 for shareholders to notify significant holdings of the company's shares. The company must release an announcement through a Regulatory Information Service (www.practicallaw.com/3-107-7129) (RIS) as soon as possible after it is notified of a dealing under DTR 3 or DTR 5.
The relevant provisions of DTR 3 are DTR 3.1.2R and DTR 3.1.4R. Further guidance is set out in the Appendix.
A PDMR is:
A director of the relevant issuer.
A senior executive of such issuer who has:
regular access to inside information relating, directly or indirectly, to the issuer; and
power to make managerial decisions affecting the future development and business prospects of the issuer.
There is no guidance on the scope of the definition of "senior executive" in FSMA or the DTRs. Not all senior managers of the company will be PDMRs: it is a much narrower test. Companies should consider only individuals whose decision-making powers extend to matters which can affect the development or prospects of the company's business to be PDMRs.
It is not necessary for a PDMR to make decisions alone. A senior manager who is a member of a sub-committee of the board by way of delegated power is likely to be a PDMR even if he has no significant decision making power outside his committee. Companies which have an executive management committee one level down from the board of directors should carefully consider whether the members of this committee are PDMRs.
It is the substance of the role that is important, rather than job title. A company should consider how much influence or responsibility a person has in managerial decision-making. Company secretaries who solely deal with administration and general counsel who offer legal advice only are not usually classified as PDMRs.
The definition of a connected person includes:
The spouse, civil partner, child or step-child of a director or other PDMR. For these purposes, the definition of child includes only those under the age of 18 years.
A relative of a director or other PDMR, who, on the date of the transaction in question, has shared the same household as that person for at least 12 months.
A body corporate with which the director or other PDMR is associated. A director or other PDMR is associated with a body corporate if (i) the PDMR or any person connected with him, is a director or other senior executive who has the power to make management decisions affecting the future development and business prospects of that body corporate; or (ii) he and persons connected with him, together are interested in shares comprised in the equity share capital of that body corporate of a nominal value equal to at least one fifth of that share capital (excluding treasury shares), or are entitled to exercise or control the exercise of more than one fifth of the voting power at any general meeting of that body (excluding any voting rights attached to any shares in the company held as treasury shares).
A person acting in his capacity as trustee of any trust (excluding an employees' share scheme or a pension scheme), of which the beneficiaries or potential beneficiaries include: the director, other PDMR or any of the persons connected with him by virtue of the first three paragraphs above.
Any person acting in his capacity as trustee of a trust whose terms confer a power on the trustees that may be exercised for the benefit of the director or other PDMR, or any of the persons connected with him by virtue of the first three paragraphs above.
A person acting in his capacity as partner of the director or other PDMR or of any person who by virtue of any of the paragraphs above is connected with the director or other PDMR.
A firm that is a legal person in which: (i) the director or other PDMR is a partner; (ii) any of the persons connected with the director or PDMR by virtue of the first five paragraphs above, is a partner; or (iii) a partner is a firm in which the director or PDMR or any of the persons connected with the director or PDMR by virtue of the first five paragraphs above is a partner.
(Section 96B(1), FSMA as contained in Schedule 11B to FSMA.)
The FSA has published informal guidance in its Market Watch newsletter (Issue No.12) (MW12) that makes it clear that a company is only to be treated as connected with a director or other PDMR by virtue of a common directorship (or by being a PDMR of the other company) if the director or PDMR concerned (or a person connected to them on some other basis) is either a:
Sole director of that other company.
Director or PDMR of that other company with personal control over its management decisions.
(Answer to Q24 of MW12: FAQs: Transactions by PDMRs and their connected persons.)
This is a much more restricted category than was initially thought.
Although MW12 refers to the old definition of connected persons (taken from section 346 of the Companies Act 1985), the guidance remains valid.
Directors and other PDMRs must notify the issuer in writing of "all transactions conducted on their own account in the shares of the issuer, or derivatives or any other financial instruments relating to those shares" (DTR 3.1.2R).
On 9 January 2009, the FSA clarified that grants of security over shares (by the creation of a security interest such as a pledge, mortgage or charge) are covered by the disclosure requirement in DTR 3 (see FSA statement on disclosure and model code obligations in respect of the use of shareholdings as security). Directors and other PDMRs must therefore inform their companies of any grant of security over their shareholdings.
The definition of "financial instrument" in the DTRs includes:
Transferable securities (for example, shares, bonds, convertible securities and warrants).
Units in collective investment undertakings (for example, unit trusts).
Equity swaps.
Options to acquire or dispose of any instrument falling into these categories.
The financial instruments which are the subject of the dealing do not themselves need to be listed securities but, if the dealing does not involve shares of the issuer, the security must "relate" to those shares to be caught by DTR 3. For example, a spread bet would be a relevant dealing, although it does not involve the shares directly.
The DTRs do not provide any general guidance on what transactions will be considered to be conducted on a person's own account. The FSA has stated, however, that the grant or acceptance of options relating to the securities of the issuer (or any other right or obligation to acquire or dispose of any securities of the issuer) and the acquisition, disposal, exercise of or dealings in such options, rights and obligations are transactions which are captured by the disclosure requirements in DTR 3. Consequently, share options will need to be disclosed by directors and other PDMRs upon their grant and exercise.
The disclosure obligations under the DTRs do not apply to a dealing in a non-beneficial interest as such a dealing cannot be regarded as being for the account of the director or other PDMR. However, a dealing by the trustees of a trust of which the director or other PDMR is a beneficiary may have to be disclosed. The FSA has not produced definitive guidance on this but the following approach is generally accepted:
Where the individual concerned is a beneficiary as a member of a relatively small class (for example, a beneficiary of a family trust) a dealing by the trust should be disclosed.
Where the individual concerned is a beneficiary as a member of a relatively large class (for example, a beneficiary of a pension scheme with many members or a holder of units in a widely held unit trust) a dealing by the trust is not required to be disclosed.
Where a PDMR is a beneficiary and instructs the trust to deal, that dealing should be disclosed.
Gifts of shares and other relevant financial instruments to or from a director or other PDMR require disclosure. This includes gifts between connected persons (for example, between husband and wife).
The disclosure must be made by the director or other PDMR or connected person within four business days of the day on which the transaction occurred (DTR 3.1.2R). Where the dealing is also caught by DTR 5, for example the director's holding has increased through 3% of the issued share capital, the disclosure must be made to the company and the FSA within two trading days (DTR 5.8.3R).
The issuer must notify an RIS of information disclosed to it under DTR 3 as soon as possible and no later than the end of the business day following receipt of the information (DTR 3.1.4R(2)). The issuer must also place this RIS announcement on its website by the close of the business day following the RIS announcement if the information contained in it amounts to inside information (DTR 2.3.2R).
Companies may wish to undertake the following steps:
Implement a written policy. Review and implement a written policy on the disclosure of dealings under DTR 3, including details of a contact person or team for any query.
Organise training. The company:
must take reasonable steps to enable its directors and PDMRs to understand their obligations and responsibilities as directors/PDMRs;
should arrange training for the directors and other PDMRs to inform them of their disclosure obligations and provide them with a copy of the written policy. If any director fails to disclose dealings in a company's securities to the company due to a lack of understanding of his duties, the company may be held responsible by the FSA for breach of Listing Principle 1 as well as the individual director being liable for failure to make the disclosure; and
should consider requiring each director and PDMR to acknowledge that he is aware of and understands his disclosure obligations and has received a copy of the company's written policy. The company should also consider the need for refresher training.
Identify a contact person/team. Identify a contact person/team with detailed knowledge of the DTR disclosure regime to answer questions from directors, other PDMRs and their connected persons. The person/team should be, or include, a member of the company secretarial department if it is involved in the clearance procedure for the Model Code.
Identify PDMRs. Identify the PDMRs and periodically review and update the list of them.
Identify connected persons and ensure they are aware of obligations. Identify the connected persons of the directors and other PDMRs and periodically update and review the list of them. Require that the directors and other PDMRs inform their connected persons of their disclosure obligations and provide such persons with a copy of the written policy.
Produce form for notifications. Create and provide a form for use by directors, other PDMRs and their connected persons which: (i) is in the same form as the company will use to disclose to the market via an RIS; and (ii) includes details of their name, the name of the company, the reason for the responsibility to notify, a description of the financial instrument, the nature of the transaction, the date and place of the transaction, and the price and number of securities involved.
Ensure procedures are in place for announcements and disclosure on website. Review procedures for announcing the dealing information to the market via an RIS by the end of the business day after receipt of the notification. Ensure that arrangements are in place for any RIS dealings disclosure announcement to be placed on the company's website by the close of the business day following the RIS announcement if the relevant information amounts to inside information.
The UKLA technical note: Disclosure and Transparency Rules was published in October 2010 and brings together items that were previously covered by the UKLA's newsletter List!. Although not formal guidance, the technical note provides useful commentary on the UKLA's thoughts on:
Transactions by PDMRs and their connected persons (see DTR 3: Transactions by PDMRs and their connected persons).
Notification of transactions by PDMRs (see Notification of transactions by PDMRs).
General FAQs regarding PDMRs (see General FAQs regarding PDMRs).
MW12 was published in June 2005 and again, although not formal guidance, provides useful commentary on the FSA's thoughts on transactions by PDMRs and their connected persons (see MW12: FAQs: Transactions by PDMRs and their connected Persons).
DTR 3 obliges PDMRs and their connected persons to notify an issuer of all dealings conducted on their own account in its shares and other instruments. The issuer is then required to notify an RIS of this information. The introduction in DTR 1 makes it clear that DTR 3 applies to issuers incorporated in the UK whose financial instruments are admitted to trading on a regulated market (www.practicallaw.com/5-200-9275). DTR 3 also applies to non-EEA issuers whose home state (www.practicallaw.com/9-107-6693) is the UK. Essentially, this latter category would consist of non-EEA issuers with shares admitted to trading in the UK where the UK has been chosen as the home member state.
DTR 3.1.8R extends the scope of DTR 3 to cover issuers that have financial instruments admitted to trading in the UK, but which do not fall within the categories outlined above. Issuers falling into this category could be either:
An EEA incorporated issuer (non-UK) which has shares admitted to trading in its home member state and also in the UK.
A non-EEA issuer with shares admitted on its domestic market, the UK and another EEA jurisdiction where the other EEA jurisdiction has been chosen as the home member state.
This rule aims to ensure that information equivalent to that which the issuer is required to disclose in the country of its primary listing, or in the jurisdiction of its home member state, is also made available in the UK. The UKLA does not require such an issuer to publish more information in the UK than it does in its country of primary listing/home member state. Some concerns have been raised that the rule's construction does not necessarily achieve this objective. The UKLA is currently re-examining this provision to ensure that it has achieved its policy objective in drafting the rule.
DTR 3.1.2R requires PDMRs and their connected persons to notify an issuer of transactions conducted on their own account in shares of the issuer, or derivatives or any other financial instrument relating to those shares. The UKLA has received several queries asking what is meant by "on own account". The following paragraphs, although not formal guidance, set out its views on this issue and the UKLA hopes this will help issuers interpret this rule.
The UKLA expects most transactions of the following types would require notification under DTR 3.1.2R:
Acquisitions of shares.
Disposals of shares.
Acceptance of awards.
Accepting or receiving an option or gifts from the issuer or a third party and the exercise of options by a PDMR.
The placing of a spread bet related to the share price of an issuer.
Transactions unlikely to be considered "on own account" could be transactions for which the PDMR has not given any instruction, consent or otherwise had any control over. An example would be the automatic vesting of an option. Similarly, in the case of an employee share scheme administered by an employee benefit trust (www.practicallaw.com/6-205-8072) (EBT) in which PDMRs are participants, dealings by an EBT for the benefit of all participants would not require notification by PDMRs under DTR 3.1.2R. Only when the EBT's transaction is in line with the instruction of a PDMR, for example, an instruction to liquidate their interest on leaving the scheme, would a transaction require notification.
It is impossible to set out a definitive "on own account" test that would be applicable to all transactions that a PDMR may conduct. However, the ULKA thinks the following indicators suggest that a transaction by a PDMR is "on own account":
A transaction which is the result of an action taken by a PDMR or otherwise undertaken with their consent.
A transaction whose beneficiaries are mainly PDMRs.
Transactions having a material impact on a PDMR's interest in an issuer.
Each transaction by a PDMR ought to be considered on its own facts to assess if it was conducted "on own account".
In deciding who is a PDMR, companies should look at the definition set out in section 96B(1) of FSMA. Companies should look beyond any job title to consider the substance of the role. Clearly, those with the power to make managerial decisions which affect the future development and business prospects of the issuer, such as board members, are PDMRs. On the other hand, those that offer analysis or information to enable others to ultimately make a managerial decision may not be PDMRs, even where they give informed recommendations.
Where the classification is not clear-cut, companies must consider how much influence or responsibility a person has in managerial decision-making. For example, company secretaries who only deal with administration, and general counsel who offer their company legal advice only are usually not classified as PDMRs.
It is impossible to indicate how many PDMRs there should be across the wide range of listed companies. Some companies will not have any PDMRs outside of the board. Companies should consider the functions and responsibilities of employees in relation to the definition of PDMR.
Where a person or persons are involved in a collective decision it is important to consider the substance of their role when assessing if they are a PDMR. If a managerial decision that affects issuers' future development and business prospects is ratified by board members, non-board members that recommended the action may nevertheless still be PDMRs. However, in cases where the decision is clearly made by the board members and not senior management, a non-board member is unlikely to be a PDMR.
The spirit of the rules relating to disclosure of transactions by PDMRs, is to require the announcement of dealings by, in addition to directors, senior executives of issuers who operate just below board level who have regular access to inside information and make managerial decisions affecting the future development and business prospects of the issuer.
Under DTR 3.1.2R, PDMRs within an issuer and their connected persons (as defined in section 96B of FSMA) must notify the issuer in writing of transactions conducted on their own account in the shares of the issuer, or derivatives or any other financial instruments relating to those shares. The FSA envisages that PDMRs are likely to include those senior employees who sit on the executive committee of an issuer even if they are not also board members.
Yes. PDMRs can be employed by any company within the issuer's group and not just by the issuer itself. There may be instances where only employees of the issuer are PDMRs, for example where all executive functions of a group are contained within the issuer itself. However, this will not always be the case as issuers often have complex corporate structures which must be looked through when identifying PDMRs within an issuer's group. Directors or senior executives at subsidiaries who regularly have access to inside information and make decisions affecting the development and business prospects of the issuer are PDMRs.
On the basis that the test for connected persons set out in section 346 of the Companies Act 1985 (note that this has since been replaced by section 96B(2) and Schedule 11B to FSMA) is not met, B will only be treated as a "connected person" for the purposes of FSMA if the director is either:
The sole director of B.
A director (or senior executive) that personally has the control over B's management decisions affecting B's future development and business prospects.
Under the Listing Rules, Model Code provisions 21 and 22 apply to "connected persons". Accordingly, these provisions will apply to B only if the director of A is the sole director of B or is a director (or senior executive) that has the personal control over B's management decisions as described above.