The Irish legislation on insider trading is contained in the Companies Acts. It is supplemented by EU legislation on market abuse and transparency.
Dealing applies to dealing of all descriptions, whether as agent or principle. It applies to the purchase or sale of shares, underwriting or making or attempting to induce a person to buy, sell or subscribe for shares.
The legislation covers officers to include both persons formally designated as such, such as directors, but also employees, liquidators, persons administering an arrangement between the company and its creditors, auditors, and receivers.
Securities covered by the legislation include all manners of shares and debentures, and rights and options in respect of them. The legislation only applies to quoted companies whose shares or other securities are listed on a stock exchange.
It is unlawful for a person connected with a company to deal with securities in a company traded on a stock exchange if he has any inside information related to it. An insider may not deal in the securities of any other company if he has inside information arising from his employment in his company.
It is unlawful to tip on the basis of inside information. A person who receives inside information may not deal or tip anyone else. The Irish legislation is limited to Irish companies. Insider information is information, which is not generally available, but if it were, it would be likely to materially affect the price of securities.
A person who engages in insider dealing is liable to civil and criminal sanctions. He may be made to disgorge his profit to the other parties to the deal who has suffered loss. He may be made to account to the company whose securities were involved. He may be subject to prosecution and maybe debarred from dealing for a period.
The prohibition applies to a person who is or was at any time in the previous six months connected with a company. His position must be such that he has information that is not generally available but would be likely to materially affect the price of securities, if available.
The type of information concerned would generally be significant information relating to the trading prospects and value of the company. It might , for example, relate to a new product mergers, joint ventures, discoveries, et cetera.
A person connected with one company may have inside information from another where there is a business relationship or actual or contemplated transactions. That person may not deal in the securities of other company, if he has information of the above kind. A person may not tip another in respect of information which he knows or ought to know that the person getting the information will himself either deal in the securities or cause or procure another party to do so.
A company is itself prohibited from dealing in securities at a time when any of its officers are prohibited from dealing by reason of the above provisions. There are exceptions in respect of so-called Chinese walls and in the context of it, a takeover transaction. A company which deals in securities, provided it has operational procedures to ensure that employees who have inside information do not deal or pass the information on, or take the investment decision, have the benefit of an exemption from the general prohibition. This is so-called Chinese wall. The onus of proof is on the company to satisfy the court that it has the necessary safeguards in place to keep the information separate.
Where one company proposes to buy shares in another, the fact of the investment or proposed investment might be regarded as inside information. Where an officer of the purchaser company knows that it is or is about to invest in the shares of another company, this is not to be regarded as inside information in relation to the company. Otherwise the proposed transaction itself would be prohibited. The same applies in respect of a sale. The exemption is limited to the fact of the proposal to buy or sell the shares as the case may be.
There is an exemption for stockbrokers who are dealing on behalf of clients. If the broker knows that the client has inside information, the effect would be to prohibit him from dealing on behalf of the client. If the broker is simply instructed without advice or discussion, he cannot be expected to be aware whether or not client acts on the basis of inside information. Accordingly, a broker is not prohibited from dealing on behalf of a client, provided he acts on a specific instruction from the client to execute the deal and he has not given any advice to the client in relation to such dealing.
A dealer may notify the stock exchange of an intention to deal [whether purchase, sale or otherwise]. The stock exchange publishes the receipt of the notice. This must be done 21 days before the intended date of dealing. The dealing must occur during the second week following publication of the annual results or interim results.
Connected persons are defined very widely. A person is connected with a company if he is an officer of the company or of a related company
- a shareholder of the company or of a related company
- an individual who is auditor or legal advisor, financial or another consultant
- an individual who has any business relationship with the company with could lead him to having inside information in relation to it.
- a public office holder who would similarly have inside information.
This will include public bodies.
The prohibition applies to persons connected with the company. Certain persons are capable of being connected with the company. This includes a substantial shareholder in the company or a related company. This is a person who holds more than a notifiable holding in the company, (i.e. more than five percent.)
A person who suffers loss as a result of another party to a transaction engaging in insider information, may recover the loss in a civil action against that other. The measure of compensation is likely to be the difference between the price which would have applied, but for the insider dealing and the actual price. The insider must account to the company for any profit arising from the inside dealing.
In proceedings brought by the innocent party in the transaction by the company whose securities are concerned, credit must be given for any amount previously recovered by the other party or company. The civil remedies are without prejudice to any other claim which may arise. This may arise by reason of negligence, tracing, breach of trust et cetera. The claim must be brought within two years of the transaction.
There are exemption where the dealing relates to
- acquisition of shares in a company by employees or trustees under a pension fund or superannuation scheme.
- underwriter completing obligations to take up unsold shares
- taking up by a director of a share qualification where this is required by the company constitution
- discharge of functions of a personal representative, trustee, liquidator, receiver or examiner
- completion of a transaction in relation to a mortgage or charge
- person inheriting shares
- transfers between trustees
A person who engages in unlawful dealing is guilty of an offence. It appears that the offence requires at least some degree of knowledge that the person is dealing in shares and an intention to make improper profit from such dealing. Where a person is convicted of an offence, then in addition to any penalties imposed, he is prohibited from any further dealing for a period of 12 months from conviction.
Where a stockbroker or other agent becomes aware or has suspicion that his client is dealing on the basis of inside information, he is prohibited from dealing. Breach of this obligation on the part of the agent is an offence.
A person convicted of offences under the legislation may on summary conviction be subject to imprisonment up to 12 months or a fine up to €1,904 or both or on n conviction on indictment, imprisonment up to 10 years or a fine not exceeding €253,947.62 or both.
The stock exchange is obliged to report suspicious transactions to the DPP and cooperate in prosecutions. This may arise as a result of its own surveillance or complaints by the public.
Members of the stock exchange should report suspected cases of dealings to the authority.
The DPP can require information from the stock exchange in relation to prosecutions. The Director of Corporate Enforcement may request the exchange to carry out an investigation and submit a report.
There is provisions for cooperation with the stock exchanges of various states. Stock exchanges must respond to requests from other EU exchanges and have in turn a corresponding right to receive information from other EU stock exchanges.
The stock exchanges may appoint an authorized person to investigate suspected cases of insider dealing. Persons appointed have significant powers to conduct investigations. An authorized person may be appointed with the agreement of the Director of Corporate Enforcement. The authorized person who is conducting the investigation, may apply to court for a decision as to whether or not the common good requires that information sought should be given.
The court may declare that the information should be provided or should not be provided. If the court declares that the information must be provided, it must be provided to the authorized person as soon as possible. Where a person who has been ordered to provide information to the court declines to do so within a reasonable time, the authorized person may certify the refusal to the court, who may treat him as if he is guilty of contempt of court.
Companies with traded securities must themselves inform the market of information which is likely to affect the share price. It must inform the market of every new development in its sphere of activity which is not public knowledge, and which may by virtue of their effect on assets and liabilities or financial position or the general course of its business, lead to substantial movements in the price of its shares. Competent authorities may exempt companies from the requirement if the disclosure is such as would prejudice legitimate interest of the company.
It is an offence where for a director to buy options in listed shares or debentures in the company of which he is a director or of a related company. This does not apply to a director purchasing, a right to subscribe for shares or debentures.
Under the model code, there is a close period in which directors and senior employees must not trade in shares of two months before the announcement of annual results. The close period in respect of the half yearly results is the period from the end of the financial period to publication and one month before quarterly reports, if the company reports quarterly.
Whenever a director or senior employee proposes to trade in shares, he must notify and get the consent of the chairman of the company to the proposed dealing. If the chairman proposes the deal, the consent must be of the chief executive of some other director.