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Dáil Éireann debate -
Tuesday, 22 Mar 1994

Vol. 440 No. 4

Adjournment Debate. - Investigation into Stockbroking Firm's Role in Shareholding Sale.

If it is agreeable, I should like to give one minute of my time to Deputy Yates.

I am sure that is satisfactory and agreed.

The cursory two sentence announcement by the London Stock Exchange on Wednesday last that Davy Stockbrokers had been fined £150,000 as a result of their mishandling of the sale of the State's 30 per cent shareholding in Greencore is just the lastest unsatisfactory twist in what has been a bizarre affair. Despite the fact that the London Stock Exchange had conducted a disciplinary investigation which apparently extended over ten days, the statement gave no account of the evidence it had heard and provided no explanation as to Davy's conduct. Were it not for the fact that Davy Stockbrokers themselves asked that the statement be issued we would not have known that the investigation had been concluded or that a penalty had been imposed.

It is now almost 12 months since irregularities in the handling of the sale of the Greencore shares came to light but the public are no wiser about the real story than they were in May last. When the story broke on 6 May last and the suspension of the sale of the shares was disclosed it led to an emergency debate in the Dáil. At that time we were promised three separate investigations into the affair, by the Office of the Attorney General, by the Dublin Stock Exchange and by the London Stock Exchange. All these investigations have now been concluded but the questions remain unanswered.

Pledges were given that there would be no cover-up, that the full facts of this episode would be disclosed. The Minister for Finance told the House on 6 May last that he would not know if the deal on the shares had been carried out illegally until legal advice was available and the various investigations concluded. On 20 May last the president of the Dublin Stock Exchange said that the report would be completed and published within a number of weeks.

We were led to believe that the investigation by the London Stock Exchange was the key one, that that was the inquiry which would provide the answers. However, the only conclusion that can be drawn from the statement issued on Wednesday last is that the Stock Exchange has nothing but contempt for the public interest or for the principle that the public have a right to information on matters which are of legitimate interest to them. The public have a right to have these questions answered. The 30 per cent shareholding in Greencore, worth £70 million, which Davy Stockbrokers were entrusted to sell was the property of taxpayers. If the sale had collapsed taxpayers stood to lose heavily.

I have always been sceptical about the adequacy of internal inquiries conducted by bodies like the Stock Exchange. The delay in completing the inquiry and the unsatisfactory statement from the Stock Exchange have simply reinforced my concerns. Stockbroking firms are immensely powerful and influential concerns, with an influence that goes far beyond the floor of the Stock Exchange. I do not believe that a self-monitoring arrangement is adequate.

It is time for the mystery and secrecy which surrounds the machinations of the Stock Exchange to be swept aside. I find it particularly unsatisfactory that an investigation of a matter of such importance to the Dáil and Irish taxpayers should be entrusted to some faceless stockbrokers from the city of London. Whatever interests these people were likely to put first, it was unlikely to be those of the Irish taxpayer.

I welcome the fact that the Minister has now shifted his position and is demanding that Davys explain why they have been reprimanded and fined. In his initial response the Minister said: "The Stock Exchange is a self-regulatory organisation and under its rules it must require the proceedings of the inquiry to remain confidential". I do not know what has provoked the Minister's change of position but this is one U-turn I heartily welcome. I hope he will insist that all relevant information is disclosed. He has some of the answers already since a separate investigation was undertaken by the Attorney General to review the factual circumstances of the placing from a legal point of view. On 12 October last the Minister told me that he did not wish "to prejudice the ongoing Stock Exchange investigation by making any comment touching upon the Attorney General's advice" and added "It will be a matter for the Government to decide whether to publish the report when the Stock Exchange inquiry has been finalised". The Stock Exchange inquiry has now been finalised and has been shown to be most unsatisfactory. The Government should go ahead and publish the result of the Attorney General's inquiry.

I thank Deputy Rabbitte. I hope to return the favour some time.

This lack of accountability is totally unacceptable. I agree with all Deputy Rabbitte has said. I am glad the Minister has shifted his position because he had welcomed the statement on Wednesday about which I was horrified.

There are three questions I want answered. The Minister sold the shares, he is accountable to the taxpayer and must obtain these answers. On the day of the sale were the buyers told that all the stock had been sold? A statement was issued by the Dublin Stock Exchange indicating that people had been misled. Was that the case? Will the Minister answer "yes" or "no"? There are supposed to be tapes available. There was a deal in place that the unsold stock would be bought by Warburg, a London merchant bank. Why was that not executed? They were there to pick up the unwanted stock, yet they did not do so. Finally, the shares were sold on a Friday. Why was it almost a week later before they notified people that they had broken the rules of Greencore, regarding ownership of more than 15 per cent and that they had broken the rules of the Stock Exchange by not disclosing that they had more than a 3 per cent interest. Why the delay in coming forward? The conclusion was that their activity was detrimental to the activities of the Stock Exchange. What offence did they commit? We must have answers to those questions.

I thank Deputy Rabbitte for raising this issue and affording me an opportunity of saying a few words on the matter.

The International Stock Exchange, of which the Irish Stock Exchange is a unit, is the appropriate body to investigate and determine this case. My officials have cooperated with the extensive, thorough inquiry conducted by the Stock Exchange over the ten months since it began in May 1993. My officials probably were put through the ring two or three times.

Under Stock Exchange rules the disciplinary committee determines charges against member firms and may impose penalties ranging from explusion from membership to a reprimand, which is the least severe penalty. In addition, a fine may be imposed. Under the rules the Council of the Stock Exchange, at its discretion, may notify the public of the fact that a member has been reprimanded if the member so requests. It is only in cases where a member has been censured, suspended or expelled that the Council must notify the public of the circumstances involved in such manner as it thinks fit.

In the case of Davy Stockbrokers the Stock Exchange announced on 16 March 1994 that the disciplinary committee had found that their conduct, in some unspecified respects, was detrimental to the interests of the Stock Exchange and that Davys had been reprimanded and fined £150,000. I understand that statement was issued at the request of Davy Stockbrokers.

On Wednesday last I welcomed the fact that Davys at least allowed us to know that the matter had been concluded and that they were actually making a statement in regard to the fine. At that stage I and others thought that we would receive at least some confidential information with regard to what had happened. That remains my position. While I can understand their reason for not making public all the information available—I know this has occurred in numerous countries — at least I would have expected to have been furnished with such information. I then realised that even I do not receive any data.

I wrote to Davy Stockbrokers yesterday, 21 March 1994, asking them to disclose in some detail the grounds on which they were found to have acted in a manner detrimental to the interests of the Stock Exchange and to ascertain the charges against them which were proceeded with. I expect to receive a reply within the next few days. Until then I will not be in a position to assess what further action, if any, may be required.

I remind Deputies that the Exchequer suffered no less whatsoever in the placing and that the full proceeds of £69,872,460, based on the sale of all the 25.4 million shares at 275 pence per share, were lodged with the Exchequer on 17 May 1993. In addition, advice fees and commissions totalling £725,000 in connection with the placing were waived by Davy Stockbrokers.

The case may have implications for the draft legislation for the regulation of the Stock Exchange and its members at present in course of finalisation. Deputy Yates raised the matter today and this gives me an opportunity to answer. The Irish Exchange is an integral part of the International London Exchange. However, when the legislation is passed it will be a separate exchange and will come under the supervision of the Central Bank. It is envisaged that the Central Bank will delegate certain responsibilities to the Stock Exchange, making use of the knowledge of practitioners, but within a strong statutory framework with ultimate responsibility residing with the Central Bank.

I am reviewing the draft legislation to ensure that both the bank, under statute and the exchange, under delegated authority and through its rules, will have adequate powers of enforcement.

Under the proposed legislation an investigation by the Stock Exchange involving breaches of codes of conduct, and the imposition of penalties for such breaches, would continue to be dealt with in the rules of the Stock Exchange but these rules will be subject to the approval of the Central Bank as regulator. In approving such rules the bank will be obliged to take account of any guidelines which I may issue, with the consent of the Minister for Enterprise and Employment, in accordance with the legislation.

When these guidelines are being drawn up they will take account of the public policy requirement of stock exchange investigations. However, the rules of the exchange must maintain a judicious balance between the publication of investigations and the public interest on the one hand and the efficient operation of the market and commercial confidentiality on the other.

The bank will also have the power to investigate matters relating to the stock exchange generally. These will be similar to the powers of the Minister for Enterprise and Employment under the Comapanies Act, 1990.

I will deal with these matters at greater length when I introduce legislation. From the point of view of the Department of Finance, work on the legislation is finished but a large number of constitutional issues has arisen. I regret the delay in introducing it. Because the legislation dates back to 1799 and is very complex the Attorney General and the parliamentary draftsman have been directly involved for many months and I expect that outstanding issues will be resolved shortly.

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