New report from the insider committee

Date 9 aug. 2010

The Insider Committee, appointed under the Danish Ministry of Economic and Business Affairs, determined in a report on insider trading, published on 5 July 2010, that the prohibition against insider trading under Danish law is in compliance with the corresponding prohibition under the EU Market Abuse Directive.


The Committee was set up with the purpose of assessing whether the interpretation of the Danish prohibition on insider trading in Section 35 under the Danish Securities Trading Act, as it appears on the basis of legal usage, most recently in the Danish Supreme Court’s ruling in the case of the Danish bank Midtbank (U.2005.984H) in 2004, is in compliance with the prohibition in Article 2(1) in the EU Market Abuse Directive, and whether the implementation into Danish law had been carried out correctly.


As a consequence of the ruling in the Midtbank case, a general concern about whether the current Danish regulation appears adequately transparent and precise in comparison with the EU law had been expressed. In this respect, the Committee has now concluded that the implementation of the directive has been carried out correctly and, as a result, that there is no need to alter the current Danish legislation regarding this matter.


The Midbank case in brief

The essence of the case was the question of whether Midtbank’s repurchase of a large amount of the bank’s own shares should be considered as insider trading, because the bank at the time of the purchase was conducting negotiations with the Swedish bank Svenska Handelsbanken about a potential takeover of Midtbank.


During the course of the negotiations with Svenska Handelsbanken, Midtbank had on the basis of a shareholders’ agreement from 1990 made use of a pre-emptive right to purchase its own shares from Realkredit Danmark. This way, almost 105,000 shares were repurchased in February 2001.


In its assessment of the case the Supreme Court determined that, because Midtbank’s repurchase took place during ongoing negotiations with Svenska Handelsbanken, Midbank’s knowledge of this constituted internal knowledge. The Supreme Court ruled that Midtbank’s possession of internal knowledge at the time of trading presumed that Midt-bank had abused the internal knowledge unless Midtbank could prove otherwise. The Supreme Court found that Midtbank’s repurchase was considered common business behaviour and therefore that Midtbank had proven that no abuse or dishonest use of internal knowledge had taken place.


Consequently, the Supreme Court ruled that the defendants had not violated the prohibition against insider trading, this way upholding the decision made by the Danish High Court of clearing the defendants who the City Court had passed judgement against.


The legal foundations in Denmark and the EU

According to Article 2(1) in the EU Market Abuse Directive, it is prohibited to make use of insider knowledge in order to, directly or indirectly, acquire, divest, or attempt to acquire or divest financial instruments such as e.g. shares. However, there are certain exceptions.


The prohibition against insider trading contains to conditions: (i) possession of internal knowledge and (ii) (ab)use of this internal knowledge.


According to Article 1(1)(1), internal knowledge is defined as a non-published specific information which directly or indirectly concerns one or several issuers of financial instruments, or one or several financial instruments, which may be considered to have a substantial impact on the price of the financial instruments if the information is released. A similar wording can be found in Section 34 (2) of the Danish Securities Trading Act.


The interpretation of the requirement of the use of internal knowledge covers the actual use, e.g. in buying or selling securities. The mere fact that a person holds internal knowledge at the time that the trade of the person’s own shares takes place does not per se constitute abuse, or any use at all, of this knowledge.


An EU-legal interpretation of the use of internal knowledge was carried out in the case C-45/08 (Spector Photo Group NV). It was determined that if a person conducts a market transaction at a time at which the person concerned holds internal knowledge, it is presumed that this knowledge has been of significance to the person, and hence been used during the transaction. In such case, a violation of the insider trading prohibition has been committed unless the presumption can be rebutted on concrete grounds.


Under Danish law, it appears from Section 35 (1) in the Securities Trading Act that use comprises purchasing, selling and encouraging hereto. While the distinction between holding internal knowledge and using it was established on an EU-level in the Spector Phone Group case, the above mentioned Supreme Court ruling in the Midtbank case was the first Danish ruling to make a distinction in relation to Danish law. Based on this ruling, it should be inferred from the present law that trading with securities while holding internal knowledge creates a presumption that the internal knowledge is used during the trade, unless this presumption can be rebutted, which was what happened in the Midtbank case. This interpretation is consistent with the interpretation established by the ruling in the Spector Photo Group case.


The Committee’s conclusion

The Committee considers both the linguistic and legal interpretation of what constitutes internal knowledge and the possession and use hereof, as well as what constitutes a violation of the insider trading prohibition pursuant to Danish law, to be consistent with the interpretation of the insider trading prohibition pursuant to the EU Market Abuse Directive. Consequently, the Committee determines that Article 2(1) of the EU Market Abuse Directive has been correctly implemented into Danish law and that, at this point, there is no need to make any legislative changes.



If you have any questions or require additional information on the prohibition against insider trading, please contact Attorney Dan Moalem ( or Assistant Attorney Christian R.J. Nielsen (


The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis for decisions or considerations