ACCA F4 - Corp and Business Law (ENG)

Part H Governance and ethical issues relating to business  22: Fraudulent and criminal behaviour 343

2.1 What is insider dealing?

Insider dealing is dealing in securities while in possession of inside information as an insider, the

securities being price-affected by the information.

To prove insider dealing, the prosecution must prove that the possessor of inside information:

 Dealt in price-affected securities on a regulated market, or

 Encouraged another to deal in them on a regulated market, or

 Disclosed the information other than in the proper performance of their employment, office or

profession.

2.1.1 Dealing

Dealing is acquiring or disposing of or agreeing to acquire or dispose of relevant securities whether

directly or through an agent or nominee or a person acting according to direction.

2.1.2 Encouraging another to deal

An offence is also committed if an individual, having information as an insider, encourages another

person to deal in price-affected securities in relation to that information. They must know or have

reasonable cause to believe that dealing would take place.

It is irrelevant whether:

 The person encouraged realises that the securities are price-affected securities

 The inside information is given to that person. For example, a simple recommendation to the

effect that 'I cannot tell you why but now would be a good time to buy shares in Bloggs plc' would

infringe the law

 Any dealing takes place, the offence being committed at the time of encouragement.

2.2 Securities covered by the Act

Securities include shares and associated derivatives, debt securities and warranties.

2.3 Inside information

Inside information is 'price sensitive information' relating to a particular issuer of securities that are

price-affected and not to securities generally.

Inside information must, if made public, be likely to have a significant effect on price and it must be

specific or precise. Specific would, for example, mean information that a takeover bid would be made for

a specific company; precise information would be details of how much would be offered for shares.

2.4 Insiders

Under the CJA a person has information as an insider if it is (and they know it is) inside information, and

if they have it (and know they have) from an inside source:

 Through being a director, employee or shareholder of an issuer of securities

 Through access because of employment, office or profession

A person does not have to actually be one of the above to be an insider. They will also be an insider if they

are given the inside information by someone who is an inside source – for example a friend or family

member.

Key term

Key term