Insider trading Flashcards
What is insider trading?
The trading of shares and other securities based on information that is not public in order to make a profit, avoid a loss, by buying or selling shares. This is done at the expense of others who do not have access to this privileged information.
What is an insider ito section 77 of the FMA?
- A person who has inside information through:
(a) being a director, employee or shareholder of an issuer of securities listed on a regulated market to which the inside information relates;
(b) having access to such information by virtue of employment, office, or profession - Where such a person knows that the direct/indirect source of information was a person contemplated in (a).
What is at the core of the concept of insider trading?
The fiduciary relationship between the insider and the company.
What is the nature of the information at the core of insider trading?
It must be such that the intention was that it was not to be public and as such, any person that discloses the information or uses information knowing that it is not public is guilty of a criminal offence if they use that information directly/indirectly to make a profit.
What is inside information ito section 77 of the FMA?
Inside information is specific or precise information which has not bee made public and which:
1. Is obtained or learned as an insider
2. If it were made public, would be likely to have a material effect on the price or value of any security listed on a regulated market or any derivative instrument related to such a security.
What is a regulated market?
Any market which is regulated ito the laws of the country in which the market conducts business as a market for dealing with securities on that market.
Who is the regulator responsible for insider trading?
Directorate of Market Abuse which exists parallel to the Financial Sector Conduct Authority.
What are the five offences under the FMA?
- Deal in securities for one’s own account while in possession of inside information
- Deal in securities on behalf of another person while in possession of inside information
- Deal in securities for an insider
- Disclose inside information to another person
- Encourage or discourage another person to deal in securities knowing that this is done based on inside information.
What are the two forms of market abuse?
- Inside trading
- Market manipulation
What is insider trading ito section 78(1)(a)?
An insider who knows that he/she has inside information and who deals directly/indirectly or through an agent for their own account in the securities listed on a regulated market or in derivative instruments related to such securities, to which the inside information relates or which are likely to be affected by it, commits an offence.
What is insider trading ito section 78(4)(a)?
An insider who knows that he/she has inside information and who discloses the inside information to another person, commits an offence.
What is insider trading ito section 78(5)?
An insider who knows that he/she has inside information and who encourages or causes another person to deal or discourages or stops another person from dealing in the securities listed on a regulated market or in derivative instruments related to such securities, to which the inside information relates or which are likely to be affected by it, commits an offence.
What are the penalties for insider trading?
Administrative and criminal.
What are the criminal penalties ito section 109(a)?
- Fine not exceeding R50 million
- Imprisonment for a period not exceeding 10 years
- Both
What is the administrative sanction to be imposed for insider trading ito section 82?
- Actual/notional profit made as a result of the insider trading
- A penalty of R1 million plus up to 3 times the actual/notional profit
- Interest on these amounts
- Costs of suit.
