Inside information is information regarding a company that, if it were to be made public, would change the company’s share price. A person who has access to this information is known as an insider.
An insider is generally working for the company, alternatively can acquire the information by a source (usually from an employee of a company).
Originally insider trading offences were governed by the Securities Services Act 36 of 2004. On or about 3 June 2013 the Financial Markets Act (FMA) came into effect and the Securities Services Act was repealed. Therefore Section 78 of the FMA governs insider trading Offences.
These possible offenses of insider trading are the following:
In terms of Section 78 (1) of the FMA provides that an insider who knows that they have insider information and who deals directly or indirectly (or through an agent) for their own account in the securities listed on a regulated market to which the inside information relates, commits an offence.
Section 78 (2) provides that an insider who knows that he or she has inside information and who deals directly or indirectly or through an agent (for example a stockbroker) for any other person in the securities listed on a regulated market to which the inside information relates, commits an offence in terms of 78(2));
The FMA has introduced a new offence of dealing with an insider, contained in Section 78(3). It provides that any person (a third party, or a ‘middle man’) who deals for an insider directly or indirectly or through an agent in the securities listed on a regulated market and who knew that such person is an insider; commits an offence.
In this case, the person dealing is not an insider because they do not have inside information but knows that the person on whose behalf they are dealing is an insider.
An insider who knows that they have inside information commits an offence if they disclose that information to another person (s 78(4)(a)). Even if the other person does not commit any insider trading offence after the disclosure, it is still an offence to disclose it.
In terms of the Offence and the punishment dealt with in Section 109 of the FMA, should someone be found guilty of insider training Section 78, they may be convicted to a fine not exceeding R50 000 000,00 or imprisonment not exceeding more than 10 years or both.
In terms of possible defences for Insider Traders these are determined by ways of a subjective test. In other words the facts of the case would determine the best possible defence in terms of the Offences committed in the FMA.
Here at Martin Vermaak Attorneys we deal with the various defences in terms of the FMA, which may be raised if an allegation of insider trading has been made against you. Our Offices will assess the allegation and the facts of the case and then possibly foresee remedies which may be sought should the allegation be incorrect.