1. 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

2. 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

3. 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

4. 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

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

6. 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

7. 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

8. 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

9. 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

10. 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

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

12. 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, X 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

13. 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

14. 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

15. 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

16. 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

17. 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