WHEN THE Supreme Court finds that the executive chairman of a major Irish company has engaged in illegal insider trading, then the highest court in the land has passed a landmark judgment.
Certainly, it proved deeply damaging for Jim Flavin of DCC, who in 2000 sold his company's stake in Fyffes. The court later decided that Mr Flavin was the possessor of price-sensitive information at the time of those transactions. This unsavoury affair also damaged the reputation of the Irish Stock Exchange (ISE); a blemish on a financial institution operating since 1793, and with a proud record. The exchange, which conducted its own investigation of the DCC share deals, sent a file to the Director of Public Prosecution. The DPP, however, brought no charges.
Much has changed since then, and for the better. In May, Mr Flavin, belatedly, resigned from the DCC board. The ISE is, no longer, the regulatory authority in such matters. Since 2005, the Financial Regulator has been responsible for investigating insider trading and market abuse cases, and is the competent authority. Nevertheless, the exchange does retain an important supervisory function, and has certain duties delegated to it by the Financial Regulator. Last week, the ISE announced a reform of its governance structure to strengthen its oversight role of trading activity. The exchange, by establishing an independent body to supervise stock market trading, is ensuring that its operations are more transparent, and therefore can command full investor confidence.
The ISE's chief executive, Deirdre Somers, has denied these reforms are a response to the DCC-Fyffes case. She says they arise from the ISE's own internal review, and reflect recent changes in the supervision of international stock markets. That may be so. Nevertheless, it is hard to believe that the revelations in the DCC case, which predate the more recent regulatory changes, had no bearing on the ISE's proposed reforms.
A principal concern of this new independent body will be to tackle insider trading and market abuse. A senior executive from the Financial Services Authority in the UK has been appointed to manage this supervisory agency, which should be in operation early next year. This move by the Irish Stock Exchange's to strengthen its capacity to tackle all forms of market abuse, whether insider dealing or trading on false information, now offers investors some protection and reassurance. At a time of great financial uncertainty and huge market volatility, extra vigilance is both welcome and necessary.