Treasury backs down on insider laws

THE GOVERNMENT has backed down on its plans to tighten insider dealing laws in the face of heavy lobbying from the City and industry.

Anthony Nelson, the Economics Secretary to the Treasury, told a City audience on Thursday that the Government was revising its proposals.

It had been feared in the City that the proposals, circulated privately in August, would ban brokers' lunches and other meetings between companies, investors and analysts.

The climbdown follows the receipt by Norman Lamont, the Chancellor, of a strongly worded letter from Andrew Hugh Smith, chairman of the London Stock Exchange, and other senior City figures complaining about the proposals. The letter, dated 18 September, complained about the speed at which the Government had consulted interested parties and lack of clarity in the proposals.

The Treasury's 21-page consultative document set out new definitions of inside information, of insiders and tippees - who supply inside information - and widened the scope of existing legislation to take in gilts or units of government debt. The changes would have made the legislation far tougher on insider dealers and made a new range of activities into criminal activities.

Mr Nelson said: 'It has been suggested that it might jeopardise legitimate activities. I want to make it absolutely clear to you today that the Government has no such intention.'

He said the legislation 'will not render the legitimate work of analysts illegal, erect barriers to the normal conduct of investment business or stop underwriting.

'I am confident that the revised proposals which we are now preparing will substantially address the legitimate points which people have put to us.'

The proposals would have meant that, for example, news that a company's major customer had gone bankrupt would be covered by insider-dealing legislation.

Stockbrokers, fund managers and some company chief executives feared that the original proposals would have ended private meetings with shareholders and others to discuss a company's business and prospects. Critics say these meetings allow companies to give investors price-sensitive information that should be announced publicly.

Supporters say that the meetings, a common feature of life in the Square Mile, help to close the gap between the City and industry. They help fund managers who manage money on behalf of pension funds, insurance companies, charities and unit trusts, to understand companies and, supporters say, contribute to making these large investors long- term shareholders.

Some investors, such as Prudential Assurance and Legal & General, hold hundreds of meeting a year with companies. Some companies use these meetings to change expectations if, for example, investors have become too optimistic about the outlook for profits.

The original proposals would have covered information about a company's performance as well takeover plans. The document said: 'The clause makes it clear that information relating to a company's prospects is inside information.'

The inclusion of gilts was intended to stop dealers taking advantage of any advance knowledge they have of government plans or economic news. In August there was concern that some firms had exploited advance knowledge of the Government's plans to borrow from abroad. But there was no legislation making this a criminal activity.

One investor said of the climbdown: 'While I welcome the change of heart we ought to wait to see the revised proposals before celebrating.'

Dealing in shares on unpublished price-sensitive information has been a criminal offence for more than a decade. The Government wants to change the law so it can implement an EC directive on insider dealing.

Support for PIA, page 19