The Financial Services Authority (FSA) has fined Woolworths Group plc (Woolworths) £350,000 for failing to disclose information to the market in a timely manner.
On 20 December 2005, Woolworths became aware of a variation to the terms of a major supply contract of one of its subsidiaries, Entertainment UK (EUK). The effect of the variation was to reduce Woolworths' profits for the year 2006/07 by an estimated £8 million. This was inside information as it was likely to have a significant effect on Woolworths' share price and should therefore have been disclosed to the market as soon as possible. Woolworths' failure to identify inside information and subsequently disclose this information until its scheduled Christmas trading update on 18 January 2006 created a false market in its shares which breached Disclosure Rule 2.2.1 and Listing Principle 4.
Margaret Cole, Director of Enforcement, said:
"Clean, efficient and orderly markets depend on timely and proper disclosure of relevant information. Woolworths' failure to disclose vital information led to a false market in its shares for 29 days. This sort of failure is unacceptable.
"Investors deserve, and the FSA expects, higher standards than Woolworths showed. We will not hesitate to take action where listed companies fail to meet obligations imposed by the Rules and Principles."
The Disclosure Rules, (now known as the Disclosure and Transparency Rules), and Listing Principles provide a fundamental protection for shareholders by requiring full disclosure to the market of all relevant information on a timely basis. This ensures that all users of the market get the same information at the same time.
Background
- The Final Notice for Woolworths Group plc includes the background to the case, details of the principle and rule breaches and factors taken into account when setting the level of the fine.
- In the last four years, the FSA has taken action against Eurodis Electron plc; MyTravel Group plc; Pace Micro Technology plc; Universal Salvage plc and Martin Christopher Hynes; and Sportsworld Media Group plc and Geoffrey Brown for similar listing rules breaches.
- Disclosure Rule 2.2.1 states that an issuer must notify a RIS [Regulatory Information Service] of any inside information which directly concerns the issuer unless disclosure rule 2.5.1 applies as soon as possible. Listing Principle 4 states that a listed company must communicate information to holders and potential holders of its listed equity securities in such a way as to avoid the creation or continuation of a false market in such listed equity securities.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
- The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.