With this article, the FIN-FSA wishes to draw the attention of market participants to, among other things, the assessment of the precise nature and significance of inside information and to good practices in trading.

On 5 April 2024, the Supreme Court issued a precedent in a case where a person acting as a company’s CEO and a member of the management team had purchased the company’s publicly traded shares before the company’s announcement of a significant order. The person was sentenced to four months' suspended imprisonment for aggravated abuse of inside information and the financial proceeds of the offence were ordered to be forfeited to the state¹.  

For the precise nature of inside information to be satisfied, it is sufficient that there is an actual possibility that the circumstance or event will occur 

To meet the definition of inside information, the information must, among other things, be of a precise nature and significant. In its predecent, the Supreme Court states that, in order to be of a precise nature, it is not required that it is possible to draw definite conclusions from the inside information as to the occurrence of the circumstance or event in question or to determine its exact timing. If a high degree of probability for the completion of an event or project were required, such a limitation of the scope of application of the definition would mean that the recipients of inside information would be in a more advantageous position from an information standpoint than others participating in the securities market.

According to the Supreme Court, it is clear from the reports in the written record that, prior to the purchases of shares by the accused person, negotiations on the offer made by the company had already reached a final stage and the contract was expected to be concluded soon.

The Supreme Court considers that the information held by the person concerning the order in question clearly met the requirement of the precise nature of inside information that there was an actual possibility of the project being carried out. According to the Supreme Court, the fact that there may have been uncertainties as to the receipt of the order or its value is not relevant in the assessment of this aspect. This was not vague or general information on the basis of which no conclusion could be drawn as to its possible impact on the value of the share.

Significance of information not affected by quality of information, only by its importance

The Supreme Court’s assessment of significance in the case was influenced by the company’s own communications. The company itself had previously stated in its interim report that it considered an order worth at least EUR 1.0 million to be significant with regard to the value of a security, and that significant orders are announced in stock exchange releases.

The Supreme Court states that the nature of the order did not deviate from the company’s normal business activities. The total value of the order, around EUR 8 million, was significant, however, compared with the company’s other order book and the company’s turnover of just over EUR 80 million for the year in question, despite the fact that the order was spread over several financial years. The order was also announced by the company as being significant. The person had known at the time of placing the purchase orders that the value of the contract under negotiation exceeded the value of EUR 1.0 million considered to be significant in the company’s own disclosure practice.

According to the Supreme Court, significance is assessed at the time of the act by an objective third party observer. Considering the total value of the order in question, its financial importance for the company was considerable. The information contributed to confirming the understanding given to investors of the positive development of the company’s financial situation.

In the precedent, the Supreme Court emphasises the perspective of a reasonable investor. The precise nature of the inside information does not require that the direction of the impact on price be predictable. With regard to the order in question, however, it was likely that its announcement would cause a positive price reaction in the market. Taking into account that the company itself had announced in its interim report that it considered an order worth at least EUR 1.0 million as a significant order with regard to the value of a security, a reasonable investor, after receiving information about the order of approximately EUR 8 million, would have acted rather on the basis of the information than have considered the information insignificant in their assessment of trade in a financial instrument.

The Supreme Court states that considering information to be significant does not require clarification of the actual effect on the share price. The actual change in the share price at the time of the transaction may, however, be used as evidence supporting an assessment that the information was significant in terms of its importance. The Supreme Court states that the increase in the share price following the disclosure of the stock exchange release concerning the order in question supports the conclusion that the order had a significant impact on the value of the company’s share. The change in the share price is not considered to be minor compared with the typical change in the share price of the company.

Supreme Court’s assessment of intentionality

As the company’s CEO, the person was responsible for the day-to-day running of the company and reported on the development of the company’s financial position to the Board of Directors. By virtue of their position, the person received the information necessary to assess the magnitude and financial significance of the order in question. The person was therefore aware of the progress of the negotiations on the order and the magnitude of the order when entering into the share purchases.

According to the Supreme Court, the person must have understood, as the company's CEO, the significance of the information about the order for investors and also the fact that the stock exchange release announcing the order would likely have an upward impact on the value of the share. The decisive element is that the person knew facts establishing the formation of inside information from which the legal assessment regarding inside information is made. The person must therefore be considered to have acted intentionally.

According to the Supreme Court, the fact that the person had discussed the share trades beforehand with the company’s lawyer or that the company did not consider pending offers of this magnitude to be insider projects is not considered significant in this assessment. It is the responsibility of the person entering into a transaction on a securities market to ensure that there is no obstacle to trading due to inside information.

FIN-FSA’s observations on good code of conduct in trading

On its website, the FIN-FSA has published 10 trading guidelines for insiders of listed companies to steer insiders towards a good code of conduct in their securities trading². Some good operating practices include drawing up and using a written trading plan, asking the person in charge of insider issues at the company in advance about any obstacles to trading, and scheduling trading after announcements of financial results.

A well-organised insider administration function will work to reduce suspicions of misconduct by company insiders. It is of prime importance that, among other things, the timely assessment of the formation of inside information, delaying disclosure of inside information, the establishment and ongoing maintenance of insider lists and the provision of information to insiders are organised in an appropriate manner within the company. Deficiencies in complying with obligations according to the Market Abuse Regulation may also lead to action being taken against the company by the FIN-FSA.

The FIN-FSA reminds investors that each investor should, however, always carefully assess themselves whether they are in possession of inside information about a company before placing an order for a financial instrument of the company. A person may be in possession of inside information even if they are not on an insider list. It is always the responsibility of the person entering into a transaction on a securities market to ensure that there is no obstacle to trading due to inside information.

In addition, the FIN-FSA emphasises that the prohibitions on the disclosure and use of inside information as well as on advice related to inside information also apply to investors other than the company’s insiders. The prohibitions are universal and apply to all those operating and trading in the securities market, regardless of their status or duties.

For further information, please contact

• Pia Ovaska, Chief Legal Adviser, pia.ovaska(at)fiva.fi or +358 9 183 5296
• Juha Manu, Senior Supervisor, juha.manu(at)fiva.fi or +358 9 183 5323

¹ Supreme Court:2024:25, register number R2022/276 (in Finnish).
² 10 trading guidelines for insiders - Inside information - www.finanssivalvonta.fi.