Europeans Are Steering for Market Reform : Push Is Toward Stiffer, Uniform Disclosure Laws

LONDON — Pressure is growing in Western Europe for companies and stockbrokers to tell the public more about the stocks they try to sell.

Governments have enacted or are debating new rules, and stockbrokers and market analysts told Reuters that they expect a move toward harmonizing widely varying standards now prevailing in Europe.

In Britain, a tough new market-regulating law requiring disclosure of information materially affecting a company’s prospects for investors took effect in April.

But new cases of insider trading--taking advantage of secret information about a company’s prospects when buying or selling stock--are still surfacing in Britain. Employees of large merchant banks are alleged to have passed on or used information about Mecca Leisure’s takeover bid for Pleasurama and Grand Metropolitan’s plans to sell its Inter-Continental Hotels subsidiary.

In July, Switzerland banned insider trading, and Belgium and Italy are preparing draft legislation.

“There must be more transparency for the markets. . . . It is necessary to protect the safety of small investors,” French Finance Minister Pierre Beregovoy said recently.

The key issue is disclosure of major shareholdings in companies and of plans for takeovers. Traders can make huge profits if they know about a takeover ahead of all other investors.

Laws Vary Widely

But many governments say that holding such knowledge is unfair. Regulators say it is essential for small investors to know who the major players are. Economists and regulators argue that if investors feel a stock market is rigged, they will shun it.

Disclosure laws now vary widely across Europe, but the regulatory landscape is about to change. The European Community is moving to bring down internal barriers to the free flow of goods and money as part of its campaign to create a single market of 320 million people.

As part of that program, EC finance ministers last month backed plans to make disclosure of major shareholdings in firms compulsory at certain levels. A communitywide insider trading rule is in the works.

In Britain, the new Financial Services Act, in force since April, sets strict standards on disclosure of information that affects a company’s investment prospects. In addition, any firm planning a takeover bid for another must quickly disclose its intentions.

In Italy, purchases of more than 2% of a company’s stock must be disclosed to the bourse regulatory commission.

Belgium does not now require disclosure of major shareholdings, but the government has rushed out a draft law that will oblige anyone acquiring 5% of a company to declare the holding. Every time the holding increases by another 5%, that too would be disclosed.

“France operates under a lesser degree of regulation than New York or London. Every recent takeover has required considerable interpretation of the rule books,” said Piers Butler, head of research for Paris brokers Enskilda SA.

French investors are required to declare acquisitions of shares when their total holding hits 5%, 10%, 20%, 33% or 50% of a company’s stock.