Insider Trading

– division 3 of the insider trading prohibitions of the Corporations Act 2001

Insider Trading

 

Insider Trading is when you have access to information about a company that is not available to the public. With the help of your inside knowledge, you engage in trading of stock or securities.

Examples of Insider Trading
  • The CEO of a company finds out that the company is going to be taken over. The takeover has not yet been publicly announced. The CEO gets his wife to buy shares in the company knowing that the share price is likely to rise.
  • A stock broker hears from his friend that the share price of a listed company is going to drop because the company is in serious debt and needs to liquidate its assets. Before liquidation of the company is public, the stock broker tells his clients to sell all their shares in the company.
What are some of the possible defences to a charge of Insider Trading?
  • There was no insider trading.
  • The information is generally available to the public.

There are other possible defences, depending on the circumstances surrounding the alleged offending. Each matter is unique and requires an individual approach and strategy.

Questions in cases like this
  • Did you have access to inside information?
  • Did you engage in trading based on this information?
  • Can they prove your trading was based on inside information?

Court that deals with this charge

This charge would generally be heard in the County Court.

“Did you engage in insider trading?”
What is the legal definition of Insider Trading?

A person trades in financial products while in possession of ‘inside information’. And knowing or they ought reasonably to have known that they were in possession of inside information at the time. If a person passes on ‘inside information’, they can also be liable under insider trading laws.

Legislation

The law for this offence can be found in division 3 of the insider trading prohibitions of the Corporations Act 2001.1

Other Important Resources
Case Studies

 


[1] Corporations Act 2001 – Section 1043A

Prohibited conduct by person in possession of inside information
(1) Subject to this Subdivision, if:
(a) a person (the insider) possesses inside information; and
(b) the insider knows, or ought reasonably to know, that the matters specified in paragraphs (a) and (b) of the definition of inside information in section 102A are satisfied in relation to the information;
the insider must not (whether as principal or agent):
(c) apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products; or
(d) procure another person to apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products.
Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)). For defences to a prosecution based on this subsection, see section 1043M.
Note 2: This subsection is also a civil penalty provision (see section 1317E). For relief from liability to a civil penalty relating to this subsection, see sections 1043N and 1317S.
(2) Subject to this Subdivision, if:
(a) a person (the insider) possesses inside information; and
(b) the insider knows, or ought reasonably to know, that the matters specified in paragraphs (a) and (b) of the definition of inside information in section 1042A are satisfied in relation to the information; and
(c) relevant Division 3 financial products are able to be traded on a financial market operated in this jurisdiction;
the insider must not, directly or indirectly, communicate the information, or cause the information to be communicated, to another person if the insider knows, or ought reasonably to know, that the other person would or would be likely to:
(d) apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products; or
(e) procure another person to apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products.
Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)). For defences to a prosecution based on this subsection, see section 1043M.
Note 2: This subsection is also a civil penalty provision (see section 1317E). For relief from liability to a civil penalty relating to this subsection, see sections 1043N and 1317S.
(3) For the purposes of the application of the Criminal Code in relation to an offence based on subsection (1) or (2):
(a) paragraph (1)(a) is a physical element, the fault element for which is as specified in paragraph (1)(b); and
(b) paragraph (2)(a) is a physical element, the fault element for which is as specified in paragraph (2)(b)