Dáil Éireann díospóireacht -
Wednesday, 12 May 1999

Vol. 504 No. 5

Companies (Amendment) (No. 3) Bill, 1999 [ Seanad ] : Second Stage.

Minister of State at the Department of Education and Science (Mr. Treacy)

I move: "That the Bill be now read a Second Time."

I am very pleased to bring this Bill before the House. The Companies (Amendment) (No. 3) Bill, 1999, is designed to introduce amendments in two areas of existing law, those relating to insider dealing and disclosure of interests in securities. These amendments are designed to bring Irish company law into line with international practice by permitting a mechanism known as price stabilisation to be used in connection with new issues or offers of securities on the Irish Stock Exchange.

The fundamental purpose of the insider dealing legislation introduced in the Companies Act, 1990, is to prevent manipulation of the stock market. Such manipulation would impede the stock market from functioning as an independent pricing mechanism and undermines the integrity and fairness of the market. However, in the case of new issues or offers of securities on the stock market large volumes of a particular security may be released onto the market at one time. This may lead to large fluctuations in the price of the newly issued security in the immediate aftermath of the issue. Such volatility in the first few weeks after an issue is undesirable for all those involved, whether they be investors, the company or those selling the securities. Price stabilisation may be used to minimise this volatility, thus helping the price of the issued security to settle in a more orderly fashion.

Although price stabilisation may appear to permit the type of manipulation which the insider dealing legislation is designed to prohibit, a closer examination shows that when appropriately regulated it is an effective mechanism for fostering a more orderly aftermarket for the new issues and offers of securities. The Bill strikes a balance between exempting stabilisation actions from the prohibition on insider dealing and laying down appropriate safeguards to ensure that the mechanism is only used as intended.

Before going into the detail of the Bill I will briefly explain how a Companies (Amendment) (No. 3) Bill has become necessary so soon. In February of this year, a Private Members' Bill was tabled by Deputy Rabbitte. That Companies (Amendment) Bill had as its sole objective the amendment of section 21 of the Companies Act, 1990, in relation to the disclosure of information which becomes available as the result of investigations carried out by inspectors or officers appointed by the Minister under section 19 or section 20 of Part II of the Companies Act, 1990. That Bill has still to be discussed.

In March of this year the Companies (Amendment) (No. 2) Bill, 1999, was published. That Bill deals primarily with amendments to the Companies (Amendment) Act, 1990, which introduced the process of examinership into Irish company law, the removal of the statutory audit requirement for certain small private limited companies and introduces a number of company law amendments as part of an overall package involving both company law and finance law to tackle the problems created by Irish registered non-resident companies. I hope that Bill will be brought before the Dáil for its Second Stage in the very near future.

While the Company Law Review Group also made recommendations for a number of changes in the insider dealing provisions contained in Part V of the Companies Act 1990, because of the diversity of the areas examined by the group, the decision was taken early on to progress implementation of the recommendations on a phased basis. Work on the preparation of proposals to implement the changes recommended by the group to Part V has not yet been progressed.

This Bill arises in the context of the proposed flotation of Telecom Éireann. Given the size and importance of the proposed offering, the Government has decided that it would be appropriate that price stabilisation be available on the Irish Stock Exchange, which will be the principal market for the shares. Subject to certain rules and limitations price stabilisation is already permitted on the other two stock exchanges where it is proposed to list Telecom Éireann, namely London and New York. It makes sense that if this mechanism is to be made available for the flotation that it be available on all three stock exchanges. Given that the flotation is planned to take place later this summer, there is an urgency in having the Bill enacted without delay.

However, under the Bill the stabilisation mechanism will be available for all companies making issues or offers on the Irish Stock Exchange, be they private or state owned enterprises. It is equitable and desirable in the light of the increasingly global nature of the equity markets that those trading on the Irish Stock Exchange can avail of this mechanism, which has been permitted for a number years in many other countries and has become accepted practice for large issues of securities.

It might be helpful to the House if I were to outline the reason this legislation is needed to permit price stabilisation. Part V of the Companies Act, 1990, introduced into Irish law provisions to deal with the issue of insider dealing in relation to the securities of companies. Insider dealing occurs when people who are in possession of price sensitive information use that information to buy or sell shares to realise a gain or avert a loss. Thus, section 108 of the Companies Act, 1990, provides that it shall not be lawful for a person who is at any time connected with the company to deal in any securities of that company if by reason of his or her connection with the company he or she is in possession of information that is not generally available, but if it were would be likely materially to affect the price of those securities. The section goes on to prohibit people who indirectly obtain price sensitive information from dealing, as well as people seeking to have the dealing done by procuring other people to engage in the deal on their behalf.

Chapter Two of Part IV of the Companies Act, 1990, deals with the disclosure of information in the shareholding of a company. In particular, a person who has an interest of 5 per cent or more of the share capital of the company has to disclose that information to the company. In addition, where as a result of buying or selling securities, the interest increases or decreases by one percentage point, that information has also to be disclosed.

In the context of the public issuing or offering of securities, international practice permits those organising the issue or offer to engage in price stabilisation for a limited period after the issue or offer takes place. As already mentioned, the reason price stabilisation has been allowed in other jurisdictions is essentially to help the price of the security which has been issued or offered to settle in a more orderly fashion. However, as Irish law currently stands, such action would be in contravention of Part V of the Companies Act, 1990, prohibiting insider dealing if carried on within the State.

The regulations made by the then Minister for Industry and Commerce in 1992, clarified that stabilisation activity carried on outside the State, for example on the London, New York or Tokyo stock exchanges, could be carried on without breaching Part V of the 1990 Act. Accordingly, to permit price stabilisation in Ireland it is proposed in the Bill to provide an exemption from the insider dealing, and certain of the disclosure requirements in the Companies Act, 1990, but only for a limited period and only where certain criteria are met. In this respect the legislation is modelled on best international practice.

In broad terms the rules and limitations that apply to stabilisation action are as follows: the fact that stabilisation may take place in a particular issue must be disclosed widely in the documentation relating to the issue, to ensure that potential investors are made aware of the fact; stabilisation is only permitted to stabilise or maintain the market price of a security and for no other purpose; stabilisation may only occur within a 30 day period after the allocation of the securities; the stabilisation manager may only purchase securities in the open market at the prevailing market price or the issue price, whichever is the lower; and the stabilisation manager must ensure that procedures are in place to keep an accurate and detailed record of any stabilisation transactions that take place and must disclose these records to the Irish Stock Exchange. These are the general requirements that must be met before stabilisation can be engaged in.

The Bill contains seven sections and a Schedule containing the stabilisation rules, which must be observed by parties engaging in stabilisation activity. Section 1 contains the interpretation and definition of a number of terms that are used subsequently in the legislation. I draw attention to the definition of "stabilising period" and to the fact that it defines this period within the jurisdiction by reference to the stabilisation rules. The stabilising period for stabilising action outside of the jurisdiction is specifically defined in the definition. While the latter definition is similar to that applying within the jurisdiction, it is not identical, because the same control will not apply to stabilisation conducted outside of the jurisdiction.

Section 2 is the main operative part of the Bill as regards exempting stabilising action from the prohibition contained in Part V of the Companies Act, 1990, in relation to insider dealing. Paragraph (a) exempts stabilising action conducted within the State for the purpose of stabilising or maintaining the market price of securities once it is done in conformity with stabilisation rules. Paragraph (b) on the other hand, exempts stabilising action undertaken outside the State, but only if the action taken is in all material respects permitted by or is otherwise in accordance with all relevant requirements, applicable to such actions in the jurisdiction where the stabilising action is undertaken, including, if the securities are listed on a stock exchange in the jurisdiction, the rules or other regulatory requirements governing that stock exchange.

Section 3 exempts acquisitions or disposals of interests in the relevant share capital of the company which is acquired by a person conducting stabilising actions during the stabilisation period from the disclosure requirements contained in sections 67 to 79 of the Companies Act, 1990. This exemption only lasts for the duration of the stabilising period. At the end of the stabilising period, if the person engaging in the stabilising actions on behalf of the party issuing or offering, still holds securities, then disclosure will have to be made in accordance with the relevant sections.

The disclosure that is required by the relevant sections is a holding of 5 per cent or more of the share capital of the company in question. Where a person has such a holding, disclosure must be made to the company. Moreover, where a person holds more than 5 per cent and engages in purchases or sales of securities which result in a one percentage point change in the amount of securities held, that must also be disclosed to the company concerned.

Chapter Two of Part IV of the Companies Act, 1990, also implemented an EU directive on the disclosure of major shareholdings. In this context where a shareholder crosses certain defined thresholds, that is where a holding moves between the threshold of 10 per cent, 25 per cent, 50 per cent or 75 per cent, then disclosure must also be made to the competent authority, which in the case of Ireland is the Irish Stock Exchange. Section 3(3) provides that the obligations in respect of such disclosure will continue to apply even to the activities of any manager of an issue or offer of securities which is otherwise exempt from the earlier disclosure requirements described.

With regard the background to section 4, in 1991, the then Minister for Industry and Commerce made regulations under section 121 of the Companies Act, 1990, to modify section 110 to facilitate the operation of Part V. Specifically, a number of clarifications were made in respect of the activities undertaken by underwriters in offerings and issues of securities. The opportunity is being taken in the Bill to revoke this statutory instrument and to replace it by the content of section 4.

Section 5 is designed to enable the Minister by regulation to make what would be termed minor adjustments to the stabilisation rules to remove any difficulty that may arise in their operation. Any such amendments would obviously be within the policies and principles in the present legislation.

Section 6 revokes two statutory instruments which were made by the Minister of the day, and which I have already briefly referred to, on the basis that the present legislation effectively replaces them. Section 7 contains the Title, collective citation and arrangements for the commencement of the legislation.

The Schedule to the legislation contains the stabilisation rules which must be observed by par ties who wish to engage in stabilisation activity. Rule 1 contains a number of definitions which set out precisely what the terms mean within the rules. Of particular note are the definitions of "introductory period" and "stabilising period" which set the limits on the periods during which certain actions must or can be taken. Rule 2 defines the scope of application of the rules and the securities to which they apply. Essentially, any issue or offer of securities for cash which are not already dealt with on a stock exchange will be covered once arrangements are made for the securities in question to be listed on the exchange. In respect of an offer of securities for cash where the securities are already listed, the offer will have to be for at least £15 million. This is designed to ensure the exemption provided stabilising action is not used in normal sales of securities on the Stock Exchange.

Rules 3 and 4 set out the action or ancillary action that may be taken by the stabilising manager and includes the purchase or sale of securities or associated securities. The stabilising manager has to be satisfied that he or she meets the other conditions set out in later rules. Rule 5 sets out the information that must be contained in any preliminary announcements or other publicity that are issued prior to the actual offering or issue taking place. Rule 6 prohibits stabilising action in relation to associated securities where the basis on which the associated securities may be exchanged for or converted into relevant securities had not been finally settled and been made the subject of a public announcement.

Rule 7 imposes limits on the price that the stabilising manager may pay for the securities. Essentially, the issue price is the maximum that may be paid. However, if a stabilising manager undertakes intervention at a lower price, he or she can intervene again at that price or if there had been an independent deal in the marketplace at the market price. Rule 8 is designed to deal with the early termination of stabilising actions and provides that notification must be made to the Stock Exchange where this occurs. This will have the effect of ending the period during which interventions may be made by the stabilising manager.

Rule 9 sets out the requirements as regards records to be kept by the stabilising manager and the fact that these must be communicated to the Irish Stock Exchange where the stabilising actions take place within the State. The Irish Stock Exchange is the competent authority in respect of the examination of possible breaches of Part V of the Companies Act, 1990, in relation to insider dealing and it is considered appropriate that it should be informed of any actions undertaken by the stabilising manager in the course of an issue or offer. In this instance, however, the information which is communicated to the Stock Exchange will not be disclosed by the Stock Exchange to the market. However, it will help the Stock Exchange better understand how and why prices may be moving in the marketplace.

That is a brief overview of what is contained in the Bill. The Government has decided that the ability to engage in price stabilising activities in the context of the forthcoming Telecom Éireann flotation is considered appropriate and, accordingly, there is an urgency in having the Bill enacted without delay. I thank the House for its co-operation in arranging this early debate and look forward to the Bill passing all remaining Stages. I commend the Bill to the House.

Mrs. Owen

This legislation is required to bring Irish law into line with international practice by providing for price stabilisation which is permitted in many EU member states, the United States and Japan. It is to be regretted, however, that the Bill is being taken so quickly. It was published and presented in the Seanad on the same day. At least Senators had the opportunity to table amendments which were debated yesterday. Because it is accepted that the matter is urgent we have agreed to take all Stages tonight. This is not good practice and is one which I hope will not be continued. Neither the Opposition nor the Minister of State will have an opportunity to table amendments at the end of Second Stage. I am putting down a marker that the Opposition will not always co-operate in this way if the Minister of State decides to take all Stage of a company law Bill on the one night.

The Minister of State referred to the report of the company law review group which was chaired by Mr. Gallagher. It was made look as if the review group recommended this change but that is not the case. It recommended other amendments in connection with insider dealing which the Minister of State has not had time to present to the House. I accept, however, that the proposed change is necessary.

It is not today or yesterday that the flotation of Telecom Éireann was first mooted. It has been talked about for a year, if not longer. The Minister of State and the Minister, Deputy O'Rourke, should have realised that legislation would be required. The Minister of State said, "Given the size and importance of the proposed offering, the Government has decided that it would be appropriate that price stabilisation be available on the Irish Stock Exchange, which will be the principal market for the shares". Clearly, the Government does not want anything to go wrong with the flotation of what is a State asset, and neither do I, but it is not good practice to rush legislation through. It should have been prepared and presented at least six months ago.

I have no great argument with the terms of the legislation. Unlike other stocks and shares which are above most people's heads, everybody understands the purpose of the flotation. I purchased some bank shares in the early eighties which I had to declare under the ethics legislation as their value had increased above the £10,000 threshold. This does not mean, however, that I am experienced when it comes to the Stock Exchange.

Because everybody is familiar with Telecom Éireann, I am certain that the share issue will be oversubscribed. It is ordinary subscribers, not the big investor, who should receive the lion's share. It is they who have made the company so wealthy. The Minister should increase the number of shares that will be available to them. Many have registered in the hope that they will be able to accumulate a nest egg and they should not be limited to between £50 and £80 worth of shares.

There has been informal stabilisation in the market for many years. This is a necessary prerequisite when a company is floated. Two examples come to mind where perhaps management of the flotations was not as well done as it should have been. When Xtra-Vision went public those who ever rented a video knew about Xtra-Vision and wanted a piece of the action. Share prices went up and down and were badly managed. Many people who put small sums of money they had saved into that company probably suffered a loss as a result. That was a time when stabilisation was certainly needed. The flotation of Dana also lead to small subscribers, people who would not normally have dabbled in stocks and shares, buying shares, and many of them were stung. Again, the management of those shares was not as good as it should have been after the flotation. I have no great difficulty with what the Minister is doing. There was a certain amount of informal stabilisation where certain people would buy blocks of shares to ensure they were available to sell or hold so as to keep the price somewhat stable.

I welcome the fact the Minister has included a 30 day limit, although I have tabled an amendment which I hope he will convince me is not needed. I am somewhat concerned that section 1 says the stabilisation period will commence with the date of the announcement of the price. I would have thought it should have commenced with the date of the trading of the share. That would have been the relevant and pertinent day – the day on which the market price begins to destabilise and go up and down. I hope the Minister will convince me that amendment is not necessary when I move it.

Another area which gave rise to some concerns in the Seanad related to Rule 9 where the Stock Exchange would not have to disclose the fact stabilising was taking place and that it could keep that information quiet until the end of the period. I note from the legislation that the stabilising manager has a great deal of authority and power and I should like to know what controls will be placed on that person. Can it be anybody in a company? Will certain criteria be laid down so that that person will be fully accountable and open in what he or she is doing?

For example, Rule 8 refers to the stabilising manager determining, before the 30th day after the closing date that he or she will take no further action. It does not appear that the stabilising manager has to give a reason for making such a decision. I understand the market will settle down and the stabilising manager will say there is no need to continue to have a stabilising regime and will let the market forces come into play. The stabilising manager is in a very powerful position and I hope controls will be built in. I note no offences have been created in this stabilising legislation. If the person appointed as stabilising manager is found to be abusing that position, will a jail sentence or a fine or whatever is considered appropriate be imposed? It is important that would happen.

Rule 9 relates to the recording of stabilisations and transactions and where the implementing of those rules is the responsibility of the stabilising manager, he or she does not have to give a record as to why, for example, a decision might have been taken to reduce the 30 days or to go the full 30 days. When setting out the rules, perhaps it will be possible to ensure full disclosure of why the stabilising manager felt ten or 15 days was necessary and that the reason be recorded. Perhaps the stabilising manager should be given a certain number of days on either side of the final date to give the reasons for his or her action.

I also intend to table an amendment on any further rules or regulations which the Minister of the day may wish to introduce. Our legislation should not give open-ended regulatory powers to Ministers whose sole function is to lay the regulation before the House because if there is no annulling amendment within 21 days, the regulation becomes law. Most Members do not see those regulations and very often they are not aware they have been laid before the House and that the 21 days are running. The House should have a greater say in relation to these regulations. We have got into the habit of bringing in enabling legislation giving Ministers powers to enforce legislation through ministerial orders and regulations. That is not a good thing and legislation does not get sufficient scrutiny. I had hoped the Minister would have accepted the amendment tabled in the Seanad.

I do not know how much consultation the Minister had before he introduced this legislation. Given that the House had no notice that theBill was being introduced in the Seanad and little time for preparation, I suspect others outside the Houses were not aware of it. That is the position in regard to IBEC. I was in contact with IBEC and would like to raise a point with the Minister which that organisation made to me but which I did not have in time to incorporate in an amendment. According to IBEC under section 6, S.I. No. 131 of 1992 is revoked. That statutory instrument, as the Minister will know, states that Irish law cannot apply to share dealings outside the State. IBEC states that the revocation of it, by implication, means that Irish law will now apply to dealings outside the State in Irish securities. This may not be the case, and I suspect section 2 deals with it. IBEC states it appears to extend the scope of our territorial remit to matters other than stabilisation of shares and, as such, goes beyond the ambit of this Bill. That organisation is concerned that there has been no consultation on this Bill and that such a measure would go through under the guise of such a narrow issue of stabilisation. It also states this particular revocation may be of concern to other parties which may not, as yet, have picked up on it.

IBEC asked me to raise that matter with the Minister. I would like to be sure that by revoking S.I. No. 131 of 1992 we are not, in any way, changing the implication of the Companies Act. The Minister is aware that S.I. 131 of 1992 was introduced by Deputy O'Malley, the then Minister for Industry and Commerce. Section 2 of that statutory instrument states that in order to remove any doubt, it is declared that section 108 of the Companies Act, 1990, does not apply to dealings outside the State in securities. The explanatory memorandum explains that section 108 does not apply to dealing outside the State in securities. Will the Minister confirm that is the case? I hope the concerns expressed to me by IBEC, and its legal representatives, are unfounded. Again, this confirms the point I made earlier that rushing legislation through the Houses does not give us time to delve into issues such as this which might be raised by very valuable organisations such as IBEC. We may have to amend this legislation in the future.

Clearly the Stock Exchange is authority to which the stabilising manager should report. As we know, our Stock Exchange was founded in 1793 and has been, by and large, a very good organisation with few scandals attached to it. Obviously, some people have diddled investors out of their shares by disappearing, leaving large debts behind them and leaving the Stock Exchange to pick up the pieces. I very much welcome the fact that the interests of investors are safeguarded by the Investor Compensation Act, 1998, because all member firms come under the terms of that legislation. It provides for the compensation of eligible investors up to a maximum of £20,000 arising from losses incurred as a result of the default of any firm listed with the Stock Exchange. The Central Bank is still the statutory supervisory and competent authority for investment compensation. Does the Minister have information on whether the Central Bank will be relinquishing that authority if and when the Government decides to bring in the single regulatory financial regime which has been talked about by the Departments of Enterprise, Trade and Employment and Finance and which was recommended by the Committee on Finance and Public Affairs. Will this new body be the supervisory body and will legislation be required in this regard?

Over the past 200 years and more recently with up-to-date legislation the Stock Exchange has provided an efficient and effective market for Irish and overseas securities and meets the highest international standards. It also facilitates companies and other investment vehicles in raising capital for their businesses, a very important part of its function. We have seen many companies going from strength to strength by becoming public and floating on the exchange, thereby raising money which allows them expand their operation, increase job capacity and develop innovative areas of trading and marketing.

The Stock Exchange and its members must be of the highest calibre. I recognise that the listing of securities in Ireland is covered under the European Community Stock Exchange regulations of 1984 and that under them we have fulfilled our obligations under the EC listing directives to provide common standards throughout the EU. One could say the legislation is extending that with the coming on stream of more or less the same regime in terms of stabilising. It is important we continue to ensure we are matching what is happening in other markets. Clearly, some flotations in Ireland will also be offered on markets outside the country, in Europe, America and Tokyo, and it is important that people here are fully up to date with the regimes which exist in those places.

The regulatory role of the Stock Exchange in facilitating the efficient operation of the securities market is important. The exchange has produced rules which ensure fairness in the market but which do not at the same time restrict competition any more than is necessary to protect investors. I want an assurance from the Minister that the legislation which we are agreeing to pass in no way thwarts or restricts competition. We would not like to see the introduction of any type of protectionism or restrictive practices just because a State owned company is being floated at this time. A Senator raised this matter and spoke about the market being rigged. I do not believe the Bill when enacted will do that, but we must safeguard competition in terms of sales. However, we must also safeguard investors and I think this is achieved in the Bill.

Apart from the amendments I will move and later discuss with the Minister, I support the Bill. I warn the Minister not to be complacent in any way. We recognise the need for urgency in this instance, although we do not recognise the need for the tardiness on the part of the Minister in not introducing it sooner given that there was such a long lead-in period in terms of the Telecom Éireann flotation. The Bill could have been introduced three or four months ago and everything could have been in place for the Minister for Public Enterprise, Deputy O'Rourke, whom I am sure would have been much happier if the legislation was in place. Nonetheless we will support the legislation.

Mr. Rabbitte

This is probably as bad an example of how not to process legislation as the House has seen. Occasionally the House is required to deal with emergency legislation for good objective reasons which deserve the term "emergency". However, there is no such justification in this case. It is scandalous and the Minister owes the House an explanation as to why we have been presented with the Bill at the 11th hour. There is no answer to Deputy Owen's point about the tardiness in introducing the Bill given the period of time we knew the Telecom Éireann flotation would take place. The Minister stated in his script that the Bill was prompted and provoked by the imminent Telecom Éireann IPO and that because of the size of the offer the provisions in the Bill are considered necessary. The Government has known about this for some years. Not only this, but if my memory serves me correctly – I am speaking without a script – the Book of Estimates for last year included a figure of £40 million for advisers. That is an unconscionable figure. It is very difficult for a lay person to understand how £40 million could be spent on advisers to facilitate a successful flotation. However, our business is not to ask why. Apparently there are civil servants, otherwise eminent in their positions, scattered throughout the public service who are prostrate every morning in front of consultants. That seems to be the way of modern public administration. However, what were these advisers doing? Why did the advisers who were paid £40 million not advise the Minister that this mechanism is necessary, if it is necessary, rather than the Minister present the Bill as emergency legislation to the House?

Senator Coghlan told the Seanad that he was speaking having only received the Bill the previous day. He commented on the Bill from what he called an initial perfunctory perusal. This is not acceptable. The Minister told the Seanad in his summing up remarks, when he seemed to have got off the leash of his excellent civil servants:

I thank Members for their contributions. Members may be assured that this legislation is straightforward and enables Ireland to conform to that which exists in the international marketplace. When professional people, banks, institutions, stock brokers and other issue managers manage funds for investors or when funds are available for investment, the investors, shareholders and the people who control the liquid assets want to know that a stabilising mechanism is available where the issue takes place otherwise they would have no confidence in that issue.

I submit that we have no objective evidence for this. The change being introduced tonight has not been the practice in the Irish Stock Exchange. Whatever the Bill is, it is not a straightforward measure. It is quite complex and opaque legislation which, as the small number of Senators who contributed to the debate in the other House said, is quite difficult for the average person to understand. There is no gainsaying this. I am sure the Minister has gone through the Bill line by line and will know it deals with an extremely complex area. Indeed, much company law is complex. Now, late on a summer's night, we are expected to take all stages of the Bill. That is not the way to deal with legislation.

It is strange we have a habit of doing this in the area of company law. The Bill proposes to amend the Companies Act, 1990, primarily in respect of two important areas, one to do with insider dealing, the other to do with disclosure of interests in securities. Members may recall that the Act was only passed after we had passed, again in emergency circumstances, the Companies (Amendment) Act, 1990, which preceded it. It is what I refer to as the Goodman Act. The House was reconvened in August 1990 and its agreement sought to interfere with the market and bail out a dominant group of companies in the beef industry. An excerpt from the main Act was taken and enacted separately with the Act proper being enacted later. We have not consolidated the two since or examined the implications, and there is now a serious and urgent necessity to codify and examine the areas of deficiency in company law rather than doing it on a piecemeal basis.

I know a little about this. I also bear a little of the blame for the pace of progress in this area. There are a number of reasons for that. One of them is that, during the short time I was Minister of State at the then Department of Enterprise and Employment, I had seven Bills enacted, some quite complex and very long. As the current Minister and Ministers of State have discovered, there is little thanks to be had in enacting legislation. It is much better to deal with county enterprise boards in Ballinasloe and other places than to be here every night going through the complex detail of company legislation.

Company law is badly in need of rectification and modernisation. It is lamentable that we are here at the eleventh hour dealing with an important matter. This matter may well have been provoked by the imminent IPO in Telecom Éireann but we are not making law for that company. This will be on the stocks and I am not equipped to deal with the legislation at short notice and scrutinise it in the detail I would like.

I do not know why this is dealt with at the eleventh hour. The Minister of State did not just have civil servants advising him he had better proceed with it. He had expensive advisers in sharp suits whose job it was to bring it to his attention, yet we are still here at the eleventh hour. Maybe there were turf wars behind the scenes. Perhaps the Department of Public Enterprise said it was its Bill and that everyone had better keep their hands off it. It has a very proprietorial Minister who would give a person six slaps of the hardest if he or she intruded on her territory. Perhaps she laid claim to it only to discover it was so complex that something might go wrong so it might be better to pass it up the line to the Department of Finance. That Department might have said it would not deal with it because it concerned company law and sent it back to the Department of Enterprise, Trade and Employment. That is probably the most plausible explanation of why we are here at this late hour without having any opportunity to take professional expert advice on what is a very complex area.

Mrs. Owen

Even today more material was received.

Mr. Rabbitte

The Minister of State said in his summing up in the Seanad when he got off the leash – he has a tremendous rhetorical flourish when he gets loose – that Senators could be assured the legislation was straightforward and only conformed to international practice. We have a Constitution. Other countries are not impeded or buttressed, depending on one's point of view, by a written Constitution. Article 43 of the Constitution sets out the rights antecedent in positive law to the private ownership of external goods. Article 43.2.2º states:

The State, accordingly, may as occasion requires delimit by law the exercise of the said rights [to private property] with a view to reconciling their exercise with the exigencies of the common good.

That harks back to Article 43.2.1º which states that the delimitation to the right to private property must conform to "the principles of social justice". I would like the Minister when he is replying to tell me what legal advice he has in terms of this conformity to the principles of social justice and how it answers the dictates or exigencies of the common good. I pose the question because the word abroad, in so far as anyone understands this, is that this is for the small punter, that the country will rise up as one and regard the IPO in Telecom Éireann as something akin to the Grand National and that all the people will have a flutter. The Minister of State, Deputy Treacy, in the time-honoured tradition of his party, is in the House to protect the small man. The word abroad is that we will protect the small man who will have a flutter on this.

That is not what it does. Whatever else, it does not protect the small man. This is essentially a contrivance between the market, senior managers in the company, the Government and the institutions to permit the entry at a low price so that ultimately they will all disproportionately benefit. There can be no doubt but that that is its effect. They all have a convergence of interests as to why that should happen. The Government wants a successful flotation. The jostling between the Minister of State, Deputy Treacy, and the Minister for Public Enterprise, Deputy O'Rourke, for the photograph on the Stock Exchange floor will be a sight to behold, but they want the photograph to look well and for the headlines on the nine o'clock news to be that there was a successful flotation of Telecom Éireann and that we are now a share-owning democracy.

Mrs. Owen

Deputy Albert Reynolds was also on the floor of the Stock Exchange and he did not last long.

Mr. Rabbitte

I remember it well.

Mr. Treacy

He did a good job.

Mrs. Owen

He did not last long.

Mr. Rabbitte

The interest of the fund managers is that, depending on the performance of shares, they will have to ensure their portfolio is balanced in terms of proportionality. For example, if the people were to rise up and demand ownership of a portion of what was theirs anyway, and they were to ring the magical telephone number, receive their share allocations and the shares were subsequently to go through the roof, the institutions would then have a problem in terms of the balance of their portfolios. They do not want that to happen. The shares will not fall in value from the price on offer day. There is a convergence of interests.

A situation which would otherwise be illegal and fraudulent will effectively no longer be illegal and will escape the charge of fraud as a result of the changes we will make to the 1990 Act. That is the impact of it. As a result, it is the Government and the institutions whose positions are being protected. Therefore, I ask the Minister to state what advice he got on the requirement in the Constitution that to delimit the right to private property ought to be in answer to the exigencies of the common good.

The Minister will be aware that there was quite a nifty little revolt in the Seanad on this matter. Senator Quinn, in particular, became quite exercised by all of this. It seems to me that the questions he raised in the Seanad were not answered. The Minister of State at the Department of Enterprise, Trade and Employment, Deputy Treacy, displays facial bewilderment that any questions posed to him in debate would not be fully answered, but Deputies would like him to take this opportunity to give verbal expression to that confidence that he dealt with these questions.

There were substantial questions. I do not agree with Senator Quinn's ideological position. I have no difficulty with the market being rigged but my concern is on whose behalf is it being rigged. I object to the notion being put aboard that the market is being rigged on behalf of the small punter because I do not believe that is what is happening.

I do not see any evidence in the Minister's speech that he has looked at this beyond the question of the Telecom Éireann flotation. It seems that somebody rushed into the Department of Public Enterprise one morning and said that the rules of the stock exchanges in New York and London permit this price stabilisation mechanism, there is no such mechanism in Dublin so how can the Department offer such a huge chunk of public property to the market with different rules obtaining at different locations. It appears that somebody then said they had better prepare a Bill quickly, the officials of the Department of Public Enterprise said it had nobody with any knowledge about that and that the Department had better go to the company law section of the Department of Enterprise, Trade and Employment and request it to introduce an emergency Bill. That is not the way to make law and it seems to me that is what happened.

Will the Minister explain the point of the "Reason for a (No. 3) Bill" heading on page 2 of his script? As one reads the page, one thinks that this is great because the Minister did not explain the position in the Seanad but we will now know the reason for the (No. 2) Bill.

Mrs. Owen

It is all the Deputy's fault.

Mr. Rabbitte

The first reason is because this year I introduced a Private Members' Bill, the purpose of which was to enable the Tánaiste to pass on to a tribunal of inquiry matters which came into her possession as a result of investigations initiated by her. The Minister stated he already published the Companies (Amendment) (No. 2) Bill, which has to do with examinership, the audit of small companies and a third matter arising out of the row we had in the House and elsewhere on the question of Irish registered non-resident companies. Again, I am not sure what this has to do with being a reason for the third amendment Bill.

Mrs. Owen

It is numeracy.

Mr. Rabbitte

It sets a certain background but it does not explain to me the purpose of this.

The Minister has put the House in an extremely difficult position. Manipulation which was not heretofore permitted will now be permitted as a result of this panic which has beset the Department of Public Enterprise arising from the imminent coming to the market of Telecom Éireann.

The Minister made some claims for the intelligibility of all of this. He has a keener brain than mine if some of this material is easily intelligible. I find it quite difficult. For example, I do not understand why, in respect of Rule 6 in the Schedule, stabilisation is not extended to this category of trading. I do not understand this restriction on stabilising action in associated securities. What is contemplated here? It seems to me, trying to read this section, that it probably refers to option-type instruments. Will the Minister state whether it is option-type instruments which are envisaged here? These would be high-risk takers. Why should the stabilisation mechanism not apply to them? Why are they exempt?

Rule 7, states: "No stabilising action shall be effected by the stabilising manager at a price higher than any relevant price determined in accordance with this Rule", and then goes on to refer to the "limits on prices at which stabilising action may be effected" and lists them. It refers to "the initial stabilising action" and then goes on to talk about "for subsequent actions". Does that mean that there can be more than one action? Does that mean that when the 30 days is up there may be a second 30 days? I find it difficult to understand whether that is what is intended and that, in fact, it can go on for 60 days. I am not sure.

The rather opaque and difficult notice posted in Rule 5 states:

In connection with this issue [name of stabilising manager] may over-allot or effect transactions which stabilise or maintain the market price of [description of relevant securities and of any associated securities] at a level which might not otherwise prevail. Such stabilising, if commenced, may be discontinued at any time.

Does the Minister intend including a provision that this notice would be posted prominently in every page so that the prospective consumer knows exactly where he or she stands? Indeed, it seems to me that it ought to carry a notice requiring the consumer to consult with his or her adviser because it is a complex area.

It is a great shame that we now find ourselves in a position where, as Deputy Owen stated, we cannot observe the normal practice, which is that we express our view on the principle of the Bill on Second Stage and then both the Minister and Opposition spokespersons may go away, take professional advice from interested and disinterested parties and return to this House with amendments to tease out the legislation in the manner in which it ought to be scrutinised. Effectively, it is anticipated that we will go through the motions here tonight, the Bill will become law and will be chalked up on the ministerial belt as an Act enacted by the Oireachtas. However, it will be an Act enacted in extraordinary circumstances. That is a great pity. Senators were presented with the Bill only yesterday. Some of the serious points raised in their contributions were not dealt with in the Minister's replies.

This area of company law is a very important one in the modern world in terms of the regulation of commerce. A number of Senators expressed concern about the manner in which the Bill was dealt with. Senator Feargal Quinn alleged that the Bill purports to create transparency, yet has the opposite effect. Senator Cox, as a member of the Minister's party, obviously supported the Bill but she commented on the lack of intelligibility and, therefore, transparency of the language. Senator Coghlan raised questions about the possible manipulation of some of the terms and pointed to recent experiences of breaches or non-compliance with company law. For these and other reasons, I am unable to express any enthusiasm for the Bill.

If the simple, straightforward argument is that because they do it this way in Tokyo, London and New York we must conform, it seems extraordinary that such a realisation only dawned at the last minute. Even though our stock market has not been as busy as other markets, there have been flotations on it recently. Why have we been presented at this late stage with a Bill as substantive as this one which we are expected to scrutinise line by line? That is an unsatisfactory way to deal with legislation and I regret its presentation in this fashion.

Mr. Perry

The Bill is designed to bring Irish company law into line with international practices by permitting price stabilisation on the Irish Stock Exchange in connection with new issues of securities and large offers of existing securities. Permitting stabilisation will allow traders on the Irish Stock Exchange to use a mechanism already available in other countries. I do not welcome the fact that we have to rush through a Bill on the complex issue of company law which is a veritable minefield.

To allow price stabilisation here, the Bill provides exemptions for a maximum period of 30 days from the insider dealing rules and some of the disclosure of interest requirements contained in the Company Act, 1990. I wonder whether the 30 day period is adequate. The Bill also sets down strict rules under which price stabilisation may be carried out. That stabilisation may occur in regard to a particular issue must be widely disclosed in all documentation to ensure potential investors are made aware of the facts.

I feel this measure is being particularly geared towards Telecom Éireann. I am disappointed by the level of shares being offered which I expect will be very minimal. People who will collectively invest millions in the company will not gain a great deal aside from the fact that they will have a solid base share. They will effectively be silent partners. I wonder whether stabilisation will work towards subscribers' interest.

Stabilisation is only permitted to stabilise or maintain the price of a security. An initial stabilisation price on the amount of shares offered will assist in evaluating the assets of a particular operation, such as Telecom Éireann. Larger companies will block buy Telecom shares which will also be floated on the London and New York stock exchanges. It will be interesting to see how that develops.

Stabilisation may only occur for a 30 day period after the allocation of securities and the marketplace will determine the full value of shares after that period. People have shares in building societies which subsequently became PLCs. In some instances shares were very tightly controlled with people being offered 150 to 200 shares. I am aware of cases where certain building societies were anxious to buy back shares at a very knockdown price where customers defaulted on payments. I am not suggesting that will happen with Telecom if people do not pay their telephone bills but the matter should be considered.

The stabilisation manager may only buy securities on the open market at, or below, the issue price. The stabilisation manager will have immense powers. To whom will he or she be answerable? The manager must also ensure procedures are in place to keep accurate and detailed records of any stabilisation transactions which occur and the records must be disclosed to the Irish Stock Exchange. Is the stock exchange obliged to make disclosures to the Minister if any anomalies arise? The stock exchange is a relatively new phenomenon in the Irish marketplace; only the privileged few deal on the stock market. The Minister should consider making the stock market more accessible and transparent. Many people feel that the stock exchange is for other people's use.

The stock exchange will have a role in the future in raising capital for SMEs. In regard to venture capital, it is an area Irish business people should seriously consider. The Government has advocated public-private partnerships and joint ventures.

There is a certain mystique to the Stock Exchange. Much could be done to dispel that. This Bill had a limited timescale and the language in it, although it is simple when you read it, is mind boggling. People will read about stabilisation and the various conditions attached to it and will not closely observe it.

The Bill applies to all offerings and issues of securities but it is intended that it should be in place to permit the initial public offering of shares in Telecom Éireann. It was mentioned that £3 million is being spent promoting the share offer on television, after an initial pay-out of £40 million to advisers.

Mrs. Owen

It is like a continuation of Riverdance, they are all singing and dancing.

Mr. Perry

I have no doubt it is a prize-winning production, but £3 million is a large sum? The newspapers will also make a great deal of money from it. The Irish Independent and The Irish Times will probably get thousands of pounds. If £3 million is being paid to advertise the shares on television, the newspapers could get £0.5 million each for publishing advertisements for the flotation. I would question expenditure of that size in such a small State.

It is good that subscribers are being given an opportunity to buy shares but I hope they will not be used as pawns in a PR exercise on behalf of the Government. It could say that this flotation went extraordinarily well and that Aer Lingus and Aer Rianta could be sold. This is the start of a major campaign of sales. If this goes well it will set the precedent. The Government is indicating what it will do with Aer Rianta and Aer Lingus and its attitude to future share flotation of joint ventures. This is similar to flotations in the UK where the Government sold the various water companies and the railways.

The sale must be handled carefully. Major assets could be governed by external forces in the stock exchanges of New York or London. It may not happen but many small shareholders will have no say at the AGM. They will receive the normal letter of invitation and it will be thrown in the dustbin.

Mrs. Owen

It is written in a language no one can understand.

Mr. Perry

The company can then be controlled by those with a vested interest. Stabilisation will exist for 30 days but after that period external forces will feel very secure and will have shares in a major company. They cannot lose. The fact that the State is backing this makes it very attractive to such forces.

The role of the Stock Exchange in Ireland should be looked at. There were huge risks for those who bought shares on the Stock Exchange when there was no stabilisation. People thought Xtra-vision was the business to follow and invested in it. The owner of the chain started with one video store and a fantastic idea but the shares plummeted due to changes in the market. There is no comparison, however, between Xtra-vision and Telecom Éireann, Aer Rianta or other companies which have State support.

It is only after the 30 day period, however, that it will become apparent who the major shareholders are. We should look at who buys the major shareholdings We are looking at the role of banks and talking about a merger of ACC Bank with ICC Bank and the sale of TSB. This process has started very suddenly and has been rushed – the Bill was introduced on 30 April and is being enacted within a very short period of time.

Rule 9 sets out the requirements for records to be kept by the stabilising manager and these must be communicated to the Irish Stock Exchange where the stabilising actions take place within the State. What happens if they take place outside the State? Who has jurisdiction over that?

The Irish Stock Exchange is the competent authority in the examination of possible breaches of the provisions of the Companies Act, 1990, on insider dealing. It is considered appropriate that it should be informed of any actions undertaken by the stabilising manager in the course of the issue or an offer. In this instance, the information which is communicated to the Stock Exchange will not be disclosed by the Stock Exchange to the market. It will, however, help the Stock Exchange to understand better how and why prices may be moving in the marketplace.

There is a great deal contained in Rule 9, a point the Minister developed in the Seanad. The role of the manager is huge. Who appoints him? Does the Minister appoint him? To whom is he answerable? The Stock Exchange is made aware of anomalies. Where does that information go once the Stock Exchange gets it?

When the company law review group submitted its report at the request of the then Minister, the group made recommendations for a number of changes in the provisions for insider dealing. Because of the diversity of areas examined by the company law review group, the decision was taken to progress the implementation of the recommendations on a phased basis. This was the start of a major change. It was in this context that the Companies (Amendment) (No. 2) Bill was prepared, to implement the recommendations of the company law review group on examinership and on the removal of the statutory audit requirements for certain small companies. Work on the preparation of proposals to implement the changes was not put to the company law review group which sat for some time. It was an afterthought and was incorporated in the group's proposals.

I do not profess to be an expert on any of this but the people who should avail of shares should be given a genuine opportunity to buy them. If there was more time available I would like to talk about the future sale of other State assets but, as Deputy Rabbitte correctly stated, the Bill was introduced in a very short period of time. We seem to be following what is happening in other parts of the world and it is an indication of where this country is going. I wish the Minister of State well on the election trail to Europe but it appears that in all legislation we are merely following suit in most issues. We should be able to stand alone in certain aspects and this is a major opportunity for Irish people to buy shares in an Irish company built by Irish employers who do an extraordinary job. It should not be manipulated by big companies but evenly distributed.

Minister of State at the Department of Enterprise, Trade and Employment (Mr. Treacy)

At the outset I would like to thank all the Deputies for the interesting contributions they made on this legislation. As I explained in my opening statement, the purpose of this legislation is essentially to bring Irish law into line with international practice. It will allow those trading on the Irish Stock Exchange to use the price stabilisation mechanism which has been available in other countries for a number of years. It is worth repeating that the balance we have struck between permitting the managers of the issues or offers to engage in price stabilisation and the rules with which they must comply is in accordance with international standards. Put at its simplest, the market will be aware, at the very start, that price stabilisation is a possibility even before the issue or offer takes place. The stabilising activity can only happen within a short window period of 30 days after the allocation of securities – there is a defined period. The stabilising manager may only buy securities in the open market at or below the issue price. The stabilising manager will have to be satisfied that appropriate procedures were followed leading up to the issue or offer, and records of any stabilisation transactions will have to be maintained and be disclosed to the Irish Stock Exchange.

Deputy Owen made the point that no time was given by us on prior notice of the Bill. We drafted the Bill to deal with one issue, price stabilisation. The Companies (No. 2) Bill was published in March last. The Government normally gives a good deal of time for consideration of Bills, and that Bill has yet to be discussed here, so obviously ample time has been given. I am sorry–

Mrs. Owen

If this was more urgent why was it not brought in beforehand?

Mr. Treacy

I will come to that point, Deputy. I am sorry if the chronological order which I narrated earlier in my Second Stage contribution caused confusion but I wanted to give due credit to Deputy Rabbitte for his Bill, which was the first. We then had the second Bill which is published but has yet to be debated, and now we have the third Bill. Rather than cause confusion I felt I was being fair in ensuring we put that information on the record. If that caused confusion, I sincerely regret it.

On the point made by Deputy Rabbitte that sufficient time was not allowed, the advisers to the Government first mooted the need for the stabilisation towards the end of last year. Subsequently, they informed us—

Mr. Rabbitte

If I were getting that kind of money—

Mr. Treacy

May I finish? Subsequently, they informed us of its necessity and hence we have this Bill.

Mrs. Owen

January, February, March, April.

Mr. Treacy

We can all reflect on the past but it is my personal view that if the stabilisation mechanism were available heretofore in this country, one or two companies which tried to get to the market might have been much more successful. That is all I will say from a personal point of view.

Deputy Owen made the point that the company law review group recommended the changes. As I mentioned in my introductory—

Mrs. Owen

No, I said they did not make this change.

Mr. Treacy

There was some confusion about who made this recommendation.

Mr. Ring

This is like the Flood tribunal.

Mr. Treacy

No. In all fairness, Deputy Ring, the Deputies are entitled to a response.

As I mentioned in my introductory remarks, the insider dealing provisions contained in Part V are one of the areas examined by the company law review group. The group reported in December 1994 and the report was published in early 1995. As mentioned also, it has been decided to implement the recommendations of the group on a phased basis. Accordingly, the proposals for amendment of Part V have not yet been the subject of detailed examination with a view to implementation.

It is probably fair to say that a number of difficult technical issues will have to be addressed in seeking to implement the recommendations of the company law review group in this area, something that was acknowledged by the group when it made its report. Moreover, arising from the experience of the competent authority in the operation of the provisions, some further refinements have been recommended to better facilitate their task in operating Part V.

Mrs. Owen

Will the Minister of State give way because what I said was that change was not recommended. Where did it come from? I fully accept the Minister of State has much more to do but this was not recommended in the company law review group report. That was the point I was making and the Minister of State is now confusing matters by saying that I said it was in the report. Why was it not in it?

Mr. Treacy

I am referring to the point the Deputy made and to what the company law review group report recommended.

Mrs. Owen

This was not in it.

Mr. Treacy

This came as a result of the recommendations of the advisers.

Mrs. Owen

The recommendations of the advisers, not the company law review group.

Mr. Treacy

I have already made that clear.

Mr. Rabbitte

On a serious point, is it not a fact that such expensive advisers would come to this conclusion just before Christmas? It really is difficult to understand. Some £40 million is provided in the Estimates for advisers associated with the flotation of Telecom, and the Minister of State was presented with this before Christmas. It is extraordinary.

Mr. Treacy

In all fairness, we cannot take it out of context. It was mooted that it may be necessary, and as a result of the discussions that went on – I was not present with the advisers at those discussions – the advice came through that it was necessary to do this. I return to the point made earlier by Deputy Rabbitte. Perhaps we should have done this many years ago. I personally believe that we erred in one or two cases. This is positive legislation. I cannot see the difficulty with it.

Mrs. Owen

Speed.

Mr. Treacy

Deputies Owen and Rabbitte referred to the Telecom flotation. While it is intended to have the legislation in place to permit price stabilisation in Ireland in respect of the initial public offering of shares in Telecom Éireann, the Bill will apply to all offerings and issues of securities in the future, and why should that not be so? We cannot bring in legislation that will be good for one semi-State organisation but not for a private company – Deputy Perry spoke about the importance of that earlier. There will be equalisation of opportunity in any flotation that might take place in the future.

The Telecom flotation falls within the ambit of the Minister for Public Enterprise, Deputy O'Rourke, and she is the person responsible for the issue. Because of stock exchange listing rules both here and on the exchanges abroad on which the securities may be listed, I do not wish to comment further on the details of that specific offering. Work was proceeding on different amendments to company law. The Government, on the recommendations that were made, decided that stabilisation should be available in the Telecom flotation, hence the Bill.

On the point made by Deputy Owen that there are no offences in the Bill, if a person does not comply with the rules he or she will not benefit from the exemption being provided in the Bill. In such an event, he or she will be subject to both criminal and civil sanctions in Part V of the 1990 Act.

Deputy Owen said that section 6 revokes S.I. No. 131 of 1992 and she had concerns as a result of discussions with IBEC. That Statutory Instrument was designed to facilitate stabilisation abroad but did not deal with such action in this State. The present Bill now deals with the issue both at home and abroad and, consequently, the statutory instrument is being revoked; we are including it in primary legislation on stabilisation in our own jurisdiction and in all other jurisdictions. Other changes to Part V have been recommended by the company law review group and will be addressed as soon as possible.

Deputy Owen made the point that the stabilising manager need not give reasons for ending stabilising actions. If the stabilising manager ceases stabilising actions, he or she is obliged to inform the Stock Exchange. This will be published as the Stock Exchange sees fit. The decision on when stabilisation action ceases is a matter for the manager's discretion and judgment based on market conditions. It is not necessary that stabilisation has to take effect, nor is it necessary that it takes effect for 30 days. It is for the stabilising managers to decide whether they will continue with it or terminate it at an earlier date than the 30 days. Once they make the decision they must notify the Stock Exchange which must make it public knowledge.

Mr. Rabbitte

Could there be a second action?

Mr. Treacy

No. Once it is initiated and terminated there is only one chance to stabilise.

Mrs. Owen

No reason has to be given.

Mr. Treacy

No. On the point made by Deputy Owen that we are in line with Europe, the insider dealing directive which was transposed into Irish law by Part V of the Companies Act, 1990, specifically allows member states to permit stabil isation. We are conforming. Deputy Rabbitte stated that company law must be consolidated and codified and this issue will be progressed as a result of the McDowell report. It will be done.

While stabilisation may appear at first sight to permit undesirable manipulation of the market, in reality, in the special circumstances of a new issue or offer of securities, this mechanism is desirable to help ensure a more orderly aftermarket for the securities concerned. When a large number of new securities are released on to the market at once, as happens with a new issue or offer, it sometimes takes a number of weeks for them to settle within the markets. A sudden glut could otherwise lead to the price becoming artificially depressed. The stabilisation mechanism encourages a more orderly transition from the abnormal trading volume when a new security is issued to a normal volume sometime later.

Deputy Rabbitte asked on whose behalf the stabilisation is being made. Price stabilisation is aimed at promoting a more orderly aftermarket for all issues or offers should the managers wish to avail of it. Counteracting artificial volatility in the aftermarket immediately after a new issue or offer is in the interest of all investors as well as the seller of the securities. We all have a duty to the taxpayer. Huge amounts of money have been invested in Telecom Éireann and it is only fair to the State that we realise the value of the company. That is the purpose of this measure. This law will affect all flotations, including the semi-State sector, if the companies' advisers wish to avail of the situation.

Deputy Rabbitte asked about Rule 7 which pertains to the upper limit on price. All stabilising actions can take place within 30 days. However, the manager can engage in this a number of times within that period once he notifies the Stock Exchange that he has terminated the stabilising action.

Rule 5(2)(a) expressly requires the notice to be included in a prominent place. It has to be clear to the prospective purchaser of the stocks that stabilising may take place. Deputy Rabbitte said that he did not understand Rule 6. This rule does not allow stabilisation in respect of associated companies to take place in circumstances where the terms of exchange for ordinary securities have not been finally settled. These circumstances may arise with some form of financial instruments and it would be inappropriate for stabilisation to take place if the final terms were not settled.

Mr. Rabbitte

Could the Minister of State explain that?

Mr. Treacy

It is a complex matter. Rule 6 does not allow stabilisation in respect of associated instruments or companies to take place in circumstances where terms of exchange for ordinary securities have not yet been finally settled. This means that a stabilisation mechanism can take place for up to 30 days after a company is floated until the markets settle. That stabilisation affects that flotation only and cannot be used in other associated companies or instruments pertaining to subsidiaries. It can only affect the company floated at that time – it is clearly focused.

As Irish law stands, stabilisation action would be in contravention of Part V of the Companies Act, 1990, prohibiting insider dealing. I referred to this in response to a point made by Deputy Owen. Regulations made by the then Minister for Industry and Commerce in 1992 clarified that stabilisation activity carried on outside the State, for example on the London, New York or Tokyo Stock Exchanges, would not breach Part V of the Act. The regulation exempted and disallowed stabilisation action in Ireland but accepted that it was relevant for Irish companies floated on international stock exchanges to use such mechanisms. That was not a level playing field for Irish consumers.

Deputy Perry asked to whom the Stock Exchange was answerable. If the stabilisation managers do not comply with the rules, they will be in breach of Part V of the Companies Act, 1990. The Stock Exchange reports these breaches to the DPP. It also makes an annual report to the Minister for Commerce in which it would be obliged to report these matters.

Deputy Perry referred to stabilisation action outside the State. Section 2(b) exempts such action as long as it applies to rules applicable abroad. I hope I have covered all the points made by Deputies. I thank Deputies for their contributions and appreciate their commitment of time and effort to the Bill. I thank the Opposition for allowing the Government to put the Bill through the House.

Mr. Rabbitte

Who appoints the stabilising manager?

Mr. Treacy

The stabilising manager is appointed by the company going to the markets. We would not introduce this legislation unless it was in Ireland's best interests. We must look forward to the medium and long-term future and understand that more flotations will take place in the euro zone. Many indigenous companies have the capacity to grow and develop provided there is an opportunity for them to do so.

Question put and agreed to.