ESMA guidance on pre-close calls with analysts

Pre-close calls are communications between an issuer and an analyst, or group of analysts, immediately before the closed period preceding the publication of an interim or a year-end financial report, providing additional insights and guidance. The analysts use this guidance to generate research, forecasts and recommendations on the issuer for their clients. Until recently, this practice had received little attention or scrutiny from regulators. 

ESMA guidance

ESMA has now, however, published a statement on pre-close calls, reiterating the legislative framework regarding this practice and the prohibition of unlawful disclosure of inside information. ESMA notes that pre-close calls carry inherent risks of unlawful disclosure of inside information by the issuer to the participating analysts – risks which are increased by the lack of publicity surrounding these calls and the absence of records of the topics discussed. 

The information disclosed during a pre-close call is only made available to the participating analysts, and is not disclosed to the wider market. It is therefore key to ensure that no inside information is disclosed during such pre-close calls. Any inadvertent disclosure of inside information triggers an obligation to promptly disclose the same information to the market in a press release. In addition, any person receiving inside information in a pre-close call is subject to the prohibitions of insider dealing and unlawful disclosure of the inside information. 

ESMA's statement comes on the back of recent episodes of high volatility in share prices of certain European issuers following their pre-close calls. Certain media outlets have linked these issuers' pre-close calls to subsequent volatility in their share price, in certain instances raising suspicions of possible unlawful disclosure of inside information.

Best practices

In its statement, ESMA identifies certain best practices for issuers when organising pre-close calls. ESMA and national regulators are of the view that complying with these best practices reduces the risk of unlawful disclosure of inside information during pre-close calls. ESMA's best practices include the following: 

• Prior to the call, carry out a thorough assessment of the information the issuer intends to share, to ensure it contains no inside information;

• Announce upcoming pre-close calls on the issuer's website, detailing, among other things, the intended participants and the topics to be discussed;

• Make the materials and documents used during the call simultaneously available on the website;

• Record the calls so as to be able to provide these recordings to the regulator upon request;

• Keep records of the information disclosed during the call and publish them on the website.

Most of these best practices are similar to the standard approach for organising earnings calls for investors and analysts after publication of financial information, where the call is announced in a press release or on the issuer's website and the accompanying presentation is published on the issuer's website alongside the press release. 

Concluding remarks

Investor relations, legal and compliance departments of European issuers would be well advised to take heed of ESMA's guidance when organising their pre-close calls. We expect the process of disclosing information through pre-close calls to come under additional scrutiny from European regulators in the coming period.