Insider Dealing

Question 1

There are two sets of regimes - one criminal and one civil - for insider dealing. Where can they be found?

Answer 1

1. Part V Criminal Justice Act 1993;

2. s118 FSMA 2000.

Question 2

What are the three offences under Part V CJA 1993?

Answer 2

1. Insider dealing (s52(1));
2. Encouraging another to deal (s52(2)(a));
3. Disclosing inside information to another (s52(2)(b)).

Question 3

What is the justification for the offence of insider dealing?

Answer 3

Insider dealing affects public confidence in the market for which ‘confidentiality and trust are integral’ (per Lord Judge in R v McQuoid).

Question 4

Set out the elements for the offence of insider dealing in s52(1) CJA 1993?

Answer 4

1. Individual;
2. Inside information;
3. Individual is an insider;
4. In a regulated market;
5. Dealing in price-affected securities.

Question 5

What is the significance of the offence in s52(1) only being imposable on an individual?

Answer 5

A company cannot be charged.

Question 6

How can we decide whether information is ‘inside information’ using the CJA 1993?

Answer 6

1. Section 57(1) sets out the test as follows:
   (a) the information is inside and the defendant knows it is, and (b) he has it and knows its from an inside source.
2. Information is defined as inside if it fulfills the characteristics set out in s56 ie (a) particular, not general, (b) specific or precise, (c) not made public, (d) will have a significant effect on the public.
3. Little guidance on s56 except some examples of when info is public is in s58(2) and examples of when info is not public in s58(3).
4. ‘Source’ is defined in s57(2).

Question 7

How may we decide whether a person is an insider?

Answer 7

Section 57(2) defines a ‘source’ as a person who has inside information through (a)(i) his position as a director, employee or shareholder of an issuer of securities, (ii) access to information by virtue of his employment, office or profession, or (b) a direct or indirect source within paragraph (a).

Question 8

Set out the elements of the offence of encouraging in s52(2)(a) CJA 1993.

Answer 8

1. Individual;
2. Information;
3. Insider;
4. Encourages another to deal;
5. In price-affected securities.
   NB: even if the encouraged party doesn’t deal the offence has been committed.

Question 9

Set out the elements of the offence of disclosing in s52(2)(b) CJA 1993.

Answer 9

1. Individual;
2. Information;
3. Insider;
4. Discloses;
5. Other than in the proper performance of the functions of his employment, office or profession.

Question 10

Where do we find the defences for offences under s52?

Answer 10

General defences are contained in s53. Special defences are contained in schedule 1.

Question 11

How may we broadly categorise the three general defences?

Answer 11

1. No profit ie D did not expect a profit or to cause loss by dealing, encouraging or disclosing;
2. No prejudice ie D believed the information was widely known;
3. No dealing ie D would have dealt in the same way even if he did not have the inside information.

Question 12

What are the penalties under the CJA 1993 for insider dealing?

Answer 12

Imprisonment up to 7 years and/or a fine (s61).

Question 13

What offences are contained in s118 FSMA 2000?

Answer 13

Three insider dealing offences (a) insider dealing, (b) disclosing and (c) use of information not generally available.
Four market abuse offences (d) behaviour that leads to a false impression, (e) employing fictitious devices, (f) disseminating information that leads to a false impression, (g) false or misleading info as to supply, demand, price, value of qualifying investments.

Question 14

What kind of test is used to find whether a person has committed market abuse under s118 FSMA?

Answer 14

Wholly objective (Winterflood Securities v FSA

Question 15

Which section of FSMA creates a criminal offence for creating a false market?

Answer 15

Section 397