This is one of these situations where people are supposed to know things. Section 96 essentially says that a stockbroker cannot deal on behalf of a person if he has reasonable cause to believe, or ought to conclude, that the deal would be unlawful. Why do we need those two phrases? What does the term "ought to conclude" add to the term "reasonable cause to believe"?
SECTION 96.
Question proposed: "That section 96 stand part of the Bill".
The term "reasonable cause to believe" would be based on his subjective knowledge of the precise transaction whereas the additional term "or ought to conclude that the deal would be unlawful" would be an objective standard whereby anybody looking at that situation and not having precise knowledge from a particular individual, nonetheless ought to conclude that the deal would be unlawful. It covers both eventualities that could arise for a stockbroker.
In that case the term used should be "ought reasonably to conclude". Surely the reasonableness test should apply to both if they mean different things.
I think the word "reasonably" is included in the concept that is conceptualised by the word "ought".
There are lots of things that the law says you ought to do which many would believe are not reasonable.
All right; we will put in the word "reasonably" since we are so reasonable, so that the section will read "ought reasonably to conclude".
If somebody rings up a stockbroker and tells him he wants to buy some shares in a particular company, will the stockbroker, because he believes that person may be friendly with or plays golf with a person who is connected with the company, be able to hold up that transaction?
That is not reasonable. I would interpret the word "reasonably" as meaning that he has some evidence.
That is different; that is knowingly.
Not necessarily knowingly but has reason to believe because of whatever signs, smoke signals, words or whatever. I do not think that simply because a fellow has had a row with a stockbroker the previous day he is going to make life difficult.
The only explanation for us going back over this is that it is getting late. I have been at another meeting with very reasonably-minded people. I thought the second part of the phrase related to the question of competence — a person in this position ought to be able to conclude as a result of his knowledge and expertise in this area that he should be reasonably expected to reach a certain conclusion. The question of competence is very relevant to the second half of the phrase.
I disagree. If I ring a stockbroker and ask him to buy some shares in company X but he knows that I am friendly with a senior manager in that company because he saw me in Port-marnock playing a game of golf with him what is he going to do? Will he say there is every chance I got a tip from the senior manager and say he cannot buy those shares on my behalf because if he does he will be committing a criminal offence?
That would be entirely unreasonable.
Why would it be unreasonable? The section is all about connected persons, people having knowledge and getting tips. What are you going to do to stockbrokers? Will stockbrokers hold up transactions because if you or I happen to know somebody they think they may be committing a criminal offence?
He does not have to start speculating as to what went on at the sixteenth or seventeenth hole.
The whole point of this section is that the people in the Stock Exchange will have to initiate proceedings for any action taken under this Part. In other words, members of the management committee or whoever are going to act as a police force and will have to justify in their annual report a certain number of investigations to show that they are doing their job. It is like the fellow who goes out and gives parking fines because his superintendent is checking up on him and he has to justify his existence. Let us not treat this lightly: it is a criminal offence for somebody to buy shares on my behalf if he has reason to believe I might know somebody in the company in which I am buying the shares. He could be asked to justify his actions before the committee of the Stock Exchange who could subsequently refer the matter to the Director of Public Prosecutions. While this investigation is going on I, as an innocent third party, may have lost a fair deal on the Stock Exchange. It is only reasonable at this stage to query if that is possible.
This section and the Bill as a whole do not envisage things arising out of casual contact or matters of that type.
The whole thing hinges on what is going to be reasonably concluded after the event, and nobody can foresee that with certainty.
What are tips?
Adding the word "reasonable" to the term "ought to conclude" makes it consistent with the rest of the Bill but it involves subsequent subjective judgments being made.
This Part is all about passing information. If he is being absolutely scrupulous, a stockbroker can hold up legitimate transactions until I prove that I do not really know Pat Rabbitte or John Bruton and that I did not talk to him about that matter when I had lunch with him the other day.
This section does not deal with holding up deals, the registration of them or anything else. It simply says that a stockbroker shall not deal on behalf of another person if he has reasonable cause to believe or ought reasonably or otherwise to conclude that the deal would be unlawful within the meaning of section 91. Because of their experience and training, stockbrokers will usually recognise an improper insider deal more rapidly than the average man in the street. This section is to prevent insider dealing and to prevent or discourage stockbrokers from colluding with those who are engaged in insider dealing. This section was introduced as a result of the criticisms made in the Seanad about the inadequacy or absence, as it was originally, of the criminal provisions. This is one of three criminal provisions brought in to make insider dealing a criminal offence, not just for those engaged directly in the dealing, but also for the stockbroker who deals on behalf of such a person if he knows what is happening. The stockbroking profession, as I understand it, have expressed no opposition to this section. They find it perfectly proper that if one of their members acts in collusion with an insider, he should be guilty of a criminal offence. I understand they support this section and they will be the only people caught by it. Potentially, if it is good enough for them, since they will be the only people who will be prosecuted under it, perhaps the committee could, in those circumstances, find it acceptable.
I am sorry, but they are not the only ones involved. I, as a potential purchaser, could be involved because the stockbroker may have reason to believe that I am a friend of so and so. The transaction could be delayed as a result of the stockbroker saying: "I am sorry, but I do not think I can deal on your behalf in this instance because I have reason to believe you could have inside information". I would then have to prove to the stockbroker that I do not have inside information. It would be very easy for a stockbroker, if he has any doubts, to say: "I am sorry, but I cannot deal for you". What is the ordinary consumer to do in that case?
If the stockbroker has a suspicion that it is an insider dealing and says "I do not want to deal because I am afraid that I will be liable for prosecution under section 96", that is fair enough. If the person concerned then has to persuade the stockbroker, by evidence of one kind or another, that it is not an insider dealing and that it is a genuine dealing, let him do that. I do not see anything wrong with that.
The whole principle of law is that you are innocent until proven guilty. If I behave against the law, that is one thing——
If the stockbroker is suspicious that it is an insider dealing and is unwilling to deal, you can do either of two things. You can go to another stockbroker or you can convince the stockbroker concerned by evidence or other persuasion, that it is not an insider dealing. There is no harm in putting people who want to engage in what appears to a stockbroker to be an insider dealing to some inconvenience. I make no apology for making it a bit difficult for the person concerned. I do not see anything wrong with that. If the stockbroker is suspicious, then he should not deal. He will be prohibited by this section from dealing. Let the person concerned prove they are bona fide.
I think this puts the focus of this debate on the stockbroker. This is a separate argument. In the original one emphasis was put on protection for the individual; it will make it difficult for the stockbroker. The Minister is correct that it covers all the reservations expressed when this Bill was debated in the Seanad. The Minister is trying to put into law what many people in the business would like to see there anyway.
May I make a suggestion? I think Deputy Barrett has a point. If the stockbrokers are going to be worried about their own position and people cannot make genuine deals because of guilt by association of some kind, do we need to add the words "ought to conclude"? Would it not be sufficient to say that it is only if you have reasonable cause to believe that a deal would be unlawful, in other words, the subjective test would be that one had actual cause to believe that this criminal offence would arise?
I do not think so because that would leave it in the position where it would only be the subjective instance that could lead to a prosecution and conviction, and that should not be the case. If there were objective reasons on which a stockbroker ought reasonably to conclude that the deal would be unlawful, then they also should be grounds for prosecution.
That would put the stockbroker in a preferred position vis-�-visthe ordinary punter. He would not have to advert to the situation.
Could we hear the Minister's reply to the substantial point made by Deputy Barrett? I do not see how it comes under this section at all or how one could make the suggestion that because one is seen playing golf with a senior manager or director of a company that the stockbroker would be entitled to draw a conclusion that to deal on his behalf could possibly be unlawful. I do not understand why we start from the point of presumption of guilt. In a country where everybody knows everybody else, I do not see that automatically as a cause for invoking this section, but the stockbroker in question would have to have reasonable cause to make such a deduction.
Under the second part of the section, a minimum level of competence is expected from a stockbroker. If he sees somebody trying to make a certain deal, it could be reasonably concluded that he ought to have been suspicious knowing what he did from his professional duties. If Deputy Barrett is right, I will vote against the section. The fact that one is seen having a pint with a director of a company and calls your stockbroker next morning to buy X shares in that particular company does not automatically induce a presumption of guilt. I do not think that is what is intended.
No. Suppose you are a stockbroker and I telephone you saying I want to buy £1,000 worth of shares in X company, and you know I am a friend of Y, and three days later those shares go up in value, will there be an inquiry? There is nothing to say there would not——
This happens every day of the week. Is that not the point of the Stock Exchange?
——because there is reason to suspect that I had obtained information.
In the instance Deputy Barrett mentioned, the stockbroker concerned does not have reasonable cause to believe on that evidence, nor ought he reasonably to conclude, that the deal would be unlawful. There would have to be more than that, substantially more.
This is the problem with this sort of law: we are all asserting with increasing certainty that we know what the judge would decide. The fact is there is nothing in this legislation which says that Deputy Barrett's interpretation is either right or wrong.
If he were right, would the stockbroking fraternity not be beating down the doors of this committee room?
The Minister has told us they are being given the job of enforcing this; maybe that is why they are not so worried about it.
I do not know whether a committee of the Stock Exchange will have a policing role. They will have to use their own ways and means of gathering information about people, their friends and relations in order to enforce this Part of the Bill because they are the policing authority. The only way they can do that is to build up a dossier so that, when they are presenting a case to the Director of Public Prosecutions they have sufficient information about my friends, my relations, where I work, with whom I talk and have a pint. How else can they police this Part? How can you make a case to the Director of Public Prosecutions unless you base your whole case on the probability that, because I am friendly with somebody, drink with them, walk with them or whatever I have received information? How else would you find out unless I go up and admit it to them? That is the whole point. Here we are asking the Stock Exchange to be the policing authority. They have to perform a policing role, and have to be suspicious. How are they going to obtain this information?
I think we are translating or converting the entire debate into an assumption that insider trading is the norm. That is a very interesting point if it is the case.
It must be.
I am sorry to find myself on the right of this committee if it is the norm. I thought it was the exception. Therefore, in the instance cited here it would be entirely unreasonable for a stockbroker to arrive at the conclusion suggested. In the normal course of dealings, there would be no reasonable cause for a stockbroker to conclude that because somebody is seen consorting with somebody in a particular company, that, in itself, constitutes a reasonable cause to invoke the provisions of this section.
The vast majority — I have not evidence of this — of transactions in the Stock Exchange, as I would suggest, are engaged in order to get a capital gain. The day is gone when people invest their money to get a dividend from a company. It is all about capital gain. As Deputy Bell says, people get information, they read magazines, they get tips, they even get them from their stockbroker to go and buy shares. This is the nub of this — whether the tip you got came from the inside or from just some cute boy who happens to read things. Remember that is what we are talking about here. We are not talking about the old days in the Stock Exchange when people invested their life savings for a reasonable dividend. It is all about capital gain.
I shall make a note of that for the next industry debate.
That is the reality.
If the situation is as bad as some Deputies seem to suggest it is, I think that makes it all the more urgent that we enact this section without further debate or delay.
That is a frivolous way to deal with the matter. I am not here to defend insider dealing. I am just talking about the normal enforcement of law. We are the lawmakers. For the sake of convenience we could pass various sections because it renders certain things easier. I am interested in the genuine, legitimate individual who wants to invest their money without any insider dealing but who can be subjected to all sorts of restrictions or controls because of what goes into legislation. I do not apologise to anybody for making these points on behalf of consumers and employees, even if, in making those points, it may appear that we are, in some way, advocating insider dealing. We are not. We are here in committee testing legislation as to how it will stand up when enforced. Merely because the Seanad decided to do something, I do not see that we should automatically have to follow. I want the Minister to answer my legitimate arguments. At the end of the day if I am wrong I will withdraw my arguments. But I am not going to sit on this committee and agree that, because we are all against insider dealing, we will accept anything. I am as concerned as anybody else about the maintenance of normal life after the passage of this Bill.
May I make a suggestion which might be helpful or might not? It seems to me that the point Deputy Barrett is making, with which others are disagreeing — although I agree with Deputy Barrett — is that certain rather extreme constructions could be put on this. Perhaps a way round it would be to have something inserted, either in this section or section 98, to the effect that the Stock Exchange may, with the approval of the Minister, issue guidelines to their members as to how they should behave so as to be within the provisions of section 96. Only with the passage of time will one be able to interpret exactly how a Stock Exchange member should behave so as not to find himself in conflict with this section. In the meantime, until case law is built up, there will be a problem. It would appear to me that, without giving the Stock Exchange the power to make law, it would be no harm if we said that they may issue guidelines with the approval of the Minister as to how members may conduct themselves to comply with the provisions of this section. Would the Minister see merit in that suggestion?
For very many years past the Stock Exchange have been issuing guidelines to their members without the consent or agreement of the Minister. I have no doubt that when this Bill is passed they will issue many more guidelines; they do not need the Minister's consent for that. This is somewhat different from whether or not a member of the Stock Exchange obeys the rules of the Stock Exchange. It goes much deeper than that. Remember this: it is going much deeper with the consent of the Stock Exchange. This is importing the sanction of the criminal law into transactions that were handled by internal regulations of the Stock Exchange up to now. Perhaps the Stock Exchange agree that their regulations were not fully enforceable up to now, or were not always enforced; I do not know. They do not disagree with importing a criminal sanction into the matter. If they find this reasonable in all the circumstances, I still respectfully suggest that the committee might find it reasonable.
I do not deal on the Stock Exchange, I do not know a great deal about it and what I am learning about it encourages me to the view that probably we should shut it down. But, in addressing the section I think that if one is engaged in insider trading, the unwitting or witting involvement of the stockbroker would be necessary and that, without imposing any duty on the stockbroker, one is virtually inviting insider trading; therefore some duty must be imposed on the stockbroker and that is what is being sought in this section.
May I suggest — to follow up Deputy Bruton's point — that perhaps a subsection could be inserted in that section which effectively would allow the Minister to issue regulations in consultation with the Stock Exchange?
Deputy Bruton had made that suggestion in relation to another section, that we could extend these powers afterwards in section 101. Perhaps instead of just confining the ability to extend the powers to whichever other section — I think it was 91 — Deputy Bruton had in mind earlier, we could expand section 101 to allow regulations to be made under Part V as a whole. That may get over this difficulty. We can do that when we reach section 101.
Question put and agreed to.
Section 97 agreed to.