Not suprisingly there are strict guidelines for senior managers buying and selling their own company shares

The news that a top executive at Connaught plc was under investigation for selling shares just before the company issued a profits warning is a timely reminder of the many rules which restrict share dealing by senior employees.

Peter Jones, chief executive of Connaught鈥檚 partnership division, sold shares in May and June this year, with the second sale just two days before the company warned that earnings could be significantly short this year and next.  The share price plummeted 80% on the news.

Jones was classed as a 鈥淧erson Discharging Managerial Responsibilities鈥� (PDMR), a category which includes all main board directors of a fully listed company and its other senior managers who have regular access to inside information on the company.

鈥淚nside information鈥� also has a set meaning: it is information relating to a company鈥檚 shares which is precise, not generally available and which is likely to have a significant effect on the price of those shares if it becomes known.

So if you are a main board director of a listed company, or a senior employee making big picture decisions and with access to inside information, you are going to be a PDMR.  And that means the FSA鈥檚 Model Code will stop you dealing in your company鈥檚 shares at certain times: before the announcement of full and half year results, and at any time when there is inside information, whether news of a possible takeover, a big contract win or a significant change in the company鈥檚 prospects. 

Permission has to be sought for all share dealings, and it must be refused at these prescribed times, even if the PDMR is himself unaware of the inside information. 

Whether permission was given in Connaught鈥檚 case is no doubt part of the investigation announced by the company. The FSA may also be taking an interest, with the risk of heavy fines for the worst cases.

Here are five things to remember before buying or selling your company鈥檚 shares:

  1. Be clear whether you are caught by the FSA鈥檚 Model Code on share dealing in listed companies.  AIM companies also have such rules and some companies extend them to more junior employees.  If in doubt, ask your company secretary.
  2. If the rules apply, always seek consent in writing before dealing.  (Dealing includes exercising options, as well as buying and selling shares.)
  3. The same restrictions can also apply to family members and those who manage investments on your behalf.
  4. If you get consent, you must deal in two business days, otherwise you have to apply again.
  5. Once you have dealt, confirm the details to the company secretary 鈥� they have to announce dealings by directors and PDMRs to the market.

Martin Webster is a partner at Pinsent Masons

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