Chapter 3 - Insider Dealing

Question 1

Insider Dealing Explain - What is the relevant legislation?

Answer 1

• Criminal Justice Act 1993, Part V (CJA 1993)

Question 2

Explain - What are the statutory offences?

Answer 2

• Dealing • Encouraging - to buy or sell • Disclosing (abuse misuse of inside information)

Question 3

Explain - Who may commit the statutory offences?

Answer 3

• An individual - living and breathing • Who has inside information • As an insider

Question 4

Explain - What is inside information?

Answer 4

• It relates to: - A particular issuer - a listed company - Particular issuers - group of banks, hotels - A particular issue - adjustment to a share price • It is specific or precise - has an affect • It has not been made public • It is price-sensitive

Question 5

Explain - Who is/can be an insider?

Answer 5

• He knows it is inside information • He knows it is from an inside source

Question 6

Explain - What is an inside source?

Answer 6

• Access as director/employee/shareholder (big institutional investor) • Access via employment/office/profession • Access (directly or indirectly) from any of the above (You can’t be an insider accidently)

Question 7

Explain - What deals are covered?

Answer 7

• Deals on a regulated market (+ MTFS & OtFs - MIFID • Deals through (or as) a professional intermediary

Question 8

Explain - What securities are covered?

Answer 8

• Shares/options on shares • Gilts/corporate loan stock • Warrants • Depositary receipts • Futures • Contracts for differences

Question 9

Explain - What are the general defences?

Answer 9

• Dealing offence/encouragement offence: - Did not expect dealing to result in a profit or avoidance of a loss - Would have acted like that anyway, even without the info (e.g., a “forced sale”) - Reasonable belief that the info had been widely disclosed • Disclosure offence: - Did not expect any dealing to take place - Did not expect dealing to result in a profit or avoidance of a loss

Question 10

Explain - What are the special defences?

Answer 10

• Market maker (acting in good faith in ordinary course of business) - stock exchange • Stabilisation (if done in terms of FCA rules) - EU MAR - new issues • Market information (knowing about deals have been or are about to be done)

Question 11

Explain - What are the enforcement procedures?

Answer 11

• LSE insider dealing group • FCA investigation possible • Normal criminal prosecution

Question 12

Explain - Evidence and penalties?

Answer 12

• Criminal standard of evidence (“beyond all reasonable doubt”) • Maximum: Seven years jail/unlimited fine