The conduct of insider trading is governed by the common law and the Financial Markets Act, Act 19 of 2012 (the “Act”).
Insider trading deals with the trading of inside information by an insider of a company. No definition of insider trading is provided, however, ‘insider’ and ‘inside information’ is defined.
An ‘insider’ is a person who is in possession of information by virtue of him / her being a director, employee or shareholder of the company concerned or having access to such information by virtue of his / her employment, office or profession. An ‘insider’ can also be a third party who receives information directly or indirectly from such a person.
‘Inside information’ is confidential information which could have a material effect on the price or value of listed securities which have not been made public. The Act further deals with publication of such information and provides a list of acts which would qualify as being ‘made public’.
Thus, an ‘insider’ will fall foul of the Act and be guilty of ‘insider trading’ should he / she provide specific information to a third party which has not been made public and which could materially affect the price or value of listed securities.
The Act further provides for five offences of insider trading, the first four of which an insider may have a defence for. These five offences are: (1) dealing for one’s own account; (2) dealing for any other person; (3) dealing for an insider; (4) disclosure of inside information to another person; and (5) encouraging or discouraging another person to deal.
Should an insider’s conduct amount to a contravention of any of the offences, an administrative sanction can be imposed and criminal proceedings may be instituted, depending on the severity of the offence. An insider should thus be mindful of how he / she deals with information in his / her possession.