Insider Dealing

Question 1

Define Insider Dealing

Answer 1

Criminal offence under the Criminal Justice Act 1993

Occurs when an individual with inside info (price - sensitive info) uses it in relation to securities (price- affected) in order to make a profit or avoid a loss, thus gaining an advantage that wouldn’t be available to the general public.

Question 2

Examples of price-affected securities (listed in Schedule 2 of the Act)

Answer 2

• contracts of differences
• depository receipts
• debt securities including debentures, debenture stock, loan stock and certificates of deposits
• futures
• options
• share and share capital of companies
• warrants

Question 3

What is inside information?

Answer 3

Info that relates to particular securities, is specific/ precise, hasn’t been made public, would have likely have a significant effect of price of securities if made public.

• particular (i.e company takeover)
• specific (i.e dates or details)
• private (exclusive)
• significant price move

Question 4

3 offences that constitute insider dealing ?

Answer 4

1) Dealing in securities on basis of inside info (i.e buying / selling)
2) encouraging others to deal on basis of inside info
3) disclosing inside info otherwise than in the proper proper performance of the functions of their employment/ profession

For an offence to be committed the acquisition / disposal must occur in regulated market or if the person is acting as a professional intermediary

Question 5

Who attains inside information?

Answer 5

Information must have been obtained by virtue of being a director, employee or shareholder of an issuer of securities (directly or indirectly) or by having access to the info by virtue of employee/ profession

Question 6

What are the insider dealing defences in relation to the dealing/ encouraging another to deal offence?

Answer 6

• Under Article 53 of Act
  1) didn’t expect an attributable profit to be made on basis of info
  2) dealt in securities anyway
  3) believed (on reasonable grounds) the info had been disclosed widely enough/ none of those taking part in dealing would be prejudiced by not having it
• NO OFFENCE COMMITTED IF INSIDER DIDN’T KNOW IT WAS INSIDE INFO

Question 7

What are the insider dealing defences in relation to disclosure of info offence?

Answer 7

1) didn’t expect any person to deal in securities as result of disclosure
2) didn’t expect person dealing to make a profit attributable

Question 8

What are the penalties for insider dealing convictions?

Answer 8

• maximum imprisonment of 7 years
• unlimited fines

(Or both)

Question 9

What is the case for prosecuting insider dealings?

Answer 9

• march 2009 FSA secured first conviction against solicitor Mr McQuoid and father in law Mr Melbourne
• prosecution reached trial, jury found Mr Q acted as legal counsel to TTP Communications who passed inside info about planned takeover by Motorola to Mr M, he benefited from a profit as result of trade bass on info
• prior takeover was made public, Mr M brought 153,824 shares at 13p per share/ once announced it was agreed share price of 45p per share = Mr M profited £48,919.20 which split later with Mr Q
• both found guilty and sentenced to 8months prison / Mr Q was suspended