11th Annual CLTA Conference 11th to 13th Feb 2001 Victoria University of Technology Melbourne A Comparative Analysis of Insider Trading Regulation – Who is liable and what are the sanctions? Victor CS Yeo Nanyang Business School Nanyang Technological University Singapore 6/25/2019

11th Annual CLTA Conference Introduction Towards a ‘global securities market’ Scope of paper Theories for insider trading regulation Survey of approaches Targets Sanctions Conclusion 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

Why regulate insider trading? Should we regulate insider trading? Misappropriation theory fiduciary aspect proprietary aspect Unfair advantage theory Market stability theory Interaction between the theories 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

Comparative survey - ‘Targets’ Two main approaches ‘fiduciary’ or ‘confidentiality’ approach (Singapore, Hong Kong, New Zealand and Companies legislation - Malaysia) focus is on relationship between insider and company fiduciary aspect of the misappropriation theory ‘proprietary approach’ (Australia, Malaysia; NB Singapore) 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

‘Fiduciary’ or ‘Confidentiality’ approach ‘Direct trading’ Trading in securities of other corporations Tippee trading 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

11th Annual CLTA Conference Direct trading Definition of insiders: ‘connected persons’ (SG;HK; NZ) persons who have ‘relationship of confidence’ (NZ) Information obtained by virtue of the relationship (SG NZ) cf s132A Companies Act (MY) 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

Dealing in securities of other companies Connected person having information relating to ‘transaction’ (SG; MY (CA)) Connected person having information - takeover related (HK; MY(CA)) Insider obtaining information in confidence from other corporation or from specified persons ‘connected’ to the corporation (NZ) 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

11th Annual CLTA Conference Tippee trading Knowledge that insider is prohibited from dealing + association for the purposes of the trading (SG) cf tippee as ‘constructive trustee’ of information Knowledge without association (HK) Tracing relationship of confidence (NZ) 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

11th Annual CLTA Conference Proprietary approach Definition of ‘insider’: ‘Any person’….(AU;MY) Windfall situations Proprietary aspect of misappropriation theory (AU;MY) Inconsistent with unfair advantage and market stability theories? 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

Comparative Survey - sanctions Penal sanctions criminal provisions civil penalty orders observations: custodial vs non-custodial fixed vs variable fine criminal vs ‘non-criminal’ and double jeopardy Civil liability 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

11th Annual CLTA Conference Criminal provisions 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

11th Annual CLTA Conference Civil Penalty Orders ‘Fine’ on the civil burden of proof (All except AU) Malaysia: Action by regulator - irrespective of criminal proceedings; $500,000 + 3X profits Regulator distributes to : costs; market participants; compensation fund; Commission New Zealand: Action by corporation or member(NB no criminal sanctions) 3x ‘profits Distributed on Court order to: others who obtained or could obtain judgment; members; the company 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

Civil Penalty Orders (2) Hong Kong Regulator (insider dealing tribunal) initiates action 3X ‘profit’ More in the nature of a ‘fine’ Singapore (*New!) Regulator - alternative to criminal prosecution 3x ‘profit’ (no specific definition); min sum prescribed In nature of a ‘fine’ 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

11th Annual CLTA Conference Civil liability Problems with using civil liability as a regulatory device evidence costs Australia Initiated by: other party; corporation; regulator (in public interest ‘First to claim’ system Hong Kong Initiated by Insider dealing tribunal only 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

Civil liability provisions (2) Malaysia: Claim initiated by counterpart (SIA); Company (for specified insiders (CA) May be liable to both parties NB may be liable to other market participants in a civil penalty action New Zealand: Claim initiated by counterpart or corporation Limit on liability but in addition to ‘pecuniary penalty’ Court may order company to distribute claim to ‘affected parties’; members - priority to the former 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

Civil liability provisions (3) Singapore Initiated by ‘contemporaneous traders’ Entitled to claim ‘loss’ - (problem with definition) Limited to ‘maximum recoverable amount’ Contemporaneous traders can file for a claim (similar to proof of debt) if insider had been convicted or had a civil penalty order made against him - statutorily preferred mode if there has been such a conviction or order (ie claim ‘dependent on regulatory action) Pro-rated distribution 6/25/2019 11th Annual CLTA Conference Victor CS Yeo

Civil liability provisions - observations Malaysia: all three theories? Australia and New Zealand: misappropriation and unfair advantage theories? Singapore and Hong Kong: market stability? 6/25/2019 11th Annual CLTA Conference Victor CS Yeo