Published — January 26, 2021
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
Read also: What is Insider Trading?
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Issuer is the originator, maker, obligor, or creator of the security
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Insider includes a director or officer of, or a person controlling the issuer
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Persons outside the company may be considered insider
Many might ponder on this, “Outsiders often have an insight that an insider doesn’t quite have”. The quote is from Diane Abbot.
In our previous article, securities are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments, whether written or electronic in character.
In trading securities, there are duties of an insider. Who is an insider?
The law says:
The following are insiders:
- the issuer who is the originator, maker, obligor, or creator of the security;
- a director or officer (or any person performing similar functions) of, or a person controlling the issuer;
- a person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public;
- a government employee, director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public; or
- a person who learns such information by a communication from any forgoing insiders.
Thus, based on the above enumeration, it shows that persons outside the company may be considered insiders as long as they have access to material nonpublic information about an issuer or a security.
When is an information material nonpublic?
The law says:
An information is “material nonpublic” if it has not been generally disclosed to the public and would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information; or would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security.
In trading of securities, it is unlawful for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer of the security that is not generally available to the public unless:
- the insider proves that the information was not gained from such relationship; or
- if the other party selling to or buying from the insider (or his agent) is identified, the insider proves:
- that he disclosed the information to the other party,
- that he had reason to believe that other party otherwise is also in possession of the information.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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