INSIDER INFORMATION

AGENDA



 DEFINITION.

Insider information is a non-public fact regarding the plans or condition of a publicly traded company
that could provide a financial advantage when used to buy or sell shares of the company's stock.

Insider information is typically gained by someone who is working within or close to a listed company. If a
person uses insider information to place trades, he or she can be found guilty of insider trading.

Insider trading is the trading of a public company's stock or other securities (such as bonds or stock
options) by individuals with access to nonpublic information about the company.

In various countries, some kinds of trading based on insider information is illegal. This is because it is
seen as unfair to other investors who do not have access to the information, as the investor with insider
information could potentially make far larger profits that a typical investor could not make.
 IS THIS LEGAL ?
Rules prohibiting or criminalizing insider trading on material non-public information exist in
most jurisdictions around the world, but the details and the efforts to enforce them vary
considerably.

In the United States, Sections 16(b) and 10(b) of the Securities Exchange Act of 1934 directly
and indirectly address insider trading. The U.S. Congress enacted this law after the stock
market crash of 1929.

In the European Union and the United Kingdom all trading on non-public information is, under
the rubric of market abuse, subject at a minimum to civil penalties and to possible criminal
penalties as well.

UK's Financial Conduct Authority has the responsibility to investigate and prosecute insider
dealing, defined by The Criminal Justice Act 1993.
 HOW IT WORKS ?

Individuals with access to insider information have an unfair advantage in the market.
Using this information to base a trade is an illegal practice known as insider trading.

It is also illegal for a person with insider information to pass it to a third party so that
they may use the information to profit.
 WHAT IS AN INSIDER ?
In the United States, Canada, Australia and Germany, for mandatory reporting purposes, corporate
insiders are defined as a company's officers, directors and any beneficial owners of more than
10% of a class of the company's equity securities.

Trades made by these types of insiders in the company's own stock, based on material non-public
information, are considered fraudulent since the insiders are violating the fiduciary duty that they
owe to the shareholders.

The corporate insider, simply by accepting employment, has undertaken a legal obligation to the
shareholders to put the shareholders' interests before their own, in matters related to the
corporation.

When insiders buy or sell based upon company-owned information, they are violating their
obligation to the shareholders.
 For example, illegal insider trading would occur if the CEO of Company A learned (prior to a public
announcement) that Company A will be taken over and then bought shares in Company A while
knowing that the share price would likely rise.

In the United States and many other jurisdictions, however, "insiders" are not just limited to
corporate officials and major shareholders where illegal insider trading is concerned but can
include any individual who trades shares based on material non-public information in violation of
some duty of trust.

This duty may be imputed; for example, in many jurisdictions, in cases of where a corporate
insider "tips" a friend about non-public information likely to have an effect on the company's
share price, the duty the corporate insider owes the company is now imputed to the friend and the
friend violates a duty to the company if he trades on the basis of this information.
 PROOF AND TRACKING
Proving that someone has been responsible for a trade can be difficult because traders may try to
hide behind nominees, offshore companies, and other proxies.

The Securities and Exchange Commission prosecutes over 50 cases each year, with many being
settled administratively out of court. The SEC and several stock exchanges actively monitor trading,
looking for suspicious activity. The SEC does not have criminal enforcement authority, but can refer
serious matters to the U.S. Attorney's Office for further investigation and prosecution.

Since insiders are required to report their trades, others often track these traders, and there is a
school of investing which follows the lead of insiders. Following such leads subjects the follower to
the risk that an insider is making a buy specifically to increase investor confidence, or is making a
sale for reasons unrelated to the health of the company (such as a desire to diversify or pay a
personal expense).
 INSIDER TRADING ALL OVER THE WORLD
European Union: In 2014 all EU Member States agreed to introduce maximum prison sentences of at
least four years for serious cases of market manipulation and insider dealing, and at least two years
for improper disclosure of insider information.

Norway: In 2009, a journalist in Nettavisen(Thomas Gulbrandsen) was sentenced to 4 months in prison

for insider trading.
The longest prison sentence in a Norwegian trial where the main charge was insider trading, was
for 8 years (2 of which suspended) when Alain Angelil was convicted in a district court on
December 9, 2011.

China: On October 1, 2015, Chinese fund manager Xu Xiang was convicted to five and a half years in
prison and fined 11 billion yuan (US$1.6 billion).
 INSIDER TRADING ALL OVER THE WORLD
India: Penalty for insider trading is imprisonment which may extend to five years, minimum of
five hundred thousand to two hundred and fifty million rupees or three times the profit made;
whichever is higher.

Canada: In 2008, police uncovered an insider trading conspiracy involving Bay Street and Wall
Street lawyer Gil Cornblum and another lawyer, Stan Grmovsek, who were found to have gained over
$10 million in illegal profits over a 14-year span.
Cornblum committed suicide before criminal charges were laid. Grmovsek pleaded guilty and was
sentenced to 39 months in prison. This was the longest term ever imposed for insider trading in
Canada. These crimes were explored in Mark Coakley's 2011 non-fiction book, Tip and Trade.
 LEGAL INSIDER TRADING EXAMPLES
The Securities and Exchange Commission explains that while most people hear the words "insider
trading" and think of the illegal act, "insider trading" can also be legal under some circumstances.

Examples of insider trading that are legal include:

1. A CEO of a corporation buys 1,000 shares of stock in the corporation. The trade is reported to the
Securities and Exchange Commission.
2. An employee of a corporation exercises his stock options and buys 500 shares of stock in the company
that he works for.
3. A board member of a corporation buys 5,000 shares of stock in the corporation. The trade is reported
to the Securities and Exchange Commission.
 ILLEGAL INSIDER TRADING EXAMPLES

Illegal insider trading is very different than legal insider trading. A person who engages in
illegal insider trading may work for the company that he buys the stock for, but does not
necessarily have to.

The key is that the person who buys or sells the stock acts on insider information (not
public information) in violation of the law.
 ILLEGAL INSIDER TRADING EXAMPLES
Examples of insider trading that are illegal include:

1. A high-level employee of a company overhears a meeting where the CFO is talking about how the
company is going to be driven into bankruptcy as a result of severe financial problems. The employee
knows that his friend owns shares of the company. The employee warns his friend that he needs to sell his
shares right away.

2. A government employee is aware that a new regulation is going to be passed that will significantly benefit
an electricity company. The government employee secretly buys shares of the electricity company and then
pushes for the regulation to go through as quickly as possible.

3. A lawyer representing the CEO of a company learns in a confidential meeting that the CEO is going to be
indicted for accounting fraud the next day. The lawyer shorts 1,000 shares of the company because he
knows that the stock price is going to go way down on news of the indictment.
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IDERTRADING.ASP