Foreign Bribery

Insider trading is the trading of securities or a wider set of financial products while in possession of information:

  1. which is not generally available; and
  2. if it were, would be likely to have a material effect on the price or value of the security.

Insiders can be anyone and they do not have to be directly related to the company. However, because of their roles, directors are more likely to be in possession of inside information so they need to exercise great care as there are very severe penalties if found liable for insider trading.

What activities are prohibited?

There are three specific prohibitions on persons with inside information.

They cannot:

  • trade securities or financial products or enter into agreements to trade;
  • get another person to trade or enter into agreements to trade;
  • directly or indirectly communicate the information to someone who they think might trade, enter into agreements to trade or get another person to trade.

What is the meaning of ‘inside information’ and other definitions?

Important definitions associated with insider trading that all directors should be aware of are:

  • Insiders – They can be either natural persons or corporations.
  • Financial products – This refers to securities, derivatives, interests in managed funds, debentures, government‑issued stocks or bonds, some superannuation products and other financial products able to be traded on financial markets (s 1042A).
  • Generally available – This consists of readily observable matters (for example media reports), or matters that have been made known in a way likely to bring them to the attention of those who commonly invest and a reasonable period for dissemination has elapsed, or matter that can be deducted, concluded or inferred from the previous points (s 1042C).
  • Inside information – This is information not generally available and, if it were so, a reasonable person would expect it to have a material effect on the price or value of financial products (s 1042A).
  • Material effect – This is an effect where a reasonable person would expect it to influence a person who commonly invests to decide whether to buy or sell financial products (s 1042D).

Are there any exceptions?

Numerous exceptions exist for insider trading. They are covered in ss 1043B to 1043K of the Corporations Act 2001 and include withdrawing from registered schemes, underwriters, acquisitions, Chinese walls, bodies corporate and holders of Australian financial services licences. For example, some defences relate to specific types of financial products and can include exceptions for insurance underwriters and the revealing of information under legal obligation. These exceptions can be used as a defence in court. It is incumbent on the prosecution to prove that these defences do not apply

Can there be insider trading where information is false?

The High Court, in Mansfield v The Queen (2012) HCA 49, has held that a person can be guilty of insider trading even where the information on which the trading was based is false. At the original trial, the prosecution had not led any evidence as to the truth of the relevant information and the defendants argued that the prosecution had failed to show that they had received 'information'. The trial judge held that the information which was acted upon had to be a 'factual reality'. On appeal, the High Court rejected this information, saying that the ordinary meaning of 'information' is not confined to 'knowledge communicated which constitutes or concerns objective truths'. 'Information' can include knowledge which is false. Heydon J summarised that...

“ the insider trading provisions, read as a whole, catch conduct by those who trade on the basis of untruths.”

The High Court also noted that the prohibition of the use of false information was consistent with the objectives of the insider trading legislation.

What are the penalties for insider trading?

There are serious penalties for insider trading. The penalty for an individual for insider trading is up to 10 years imprisonment and/or the greater of $495,000 or three times the profit gained or loss avoided. For companies, the maximum penalty is the greater of $4.95 million, three times the profit gained or loss avoided or 10 per cent of the body corporate’s annual turnover in the relevant period.

In a speech to the 2010 Supreme Court of Victoria Law Conference on 'Insider trading and market manipulation', the then ASIC Chairman, Mr Tony D'Aloisio, noted the following on sentencing in this area:

"A recent review of insider trading cases (Juliette Overland) has shown that courts had most commonly taken into account 17 criteria:

  1. amount of profit made
  2. character of the offender
  3. any expression of remorse or contrition
  4. any extra-curial punishment
  5. general deterrence
  6. manner in which the information was acquired
  7. personal circumstances of the offender
  8. any breach of confidence
  9. manner in which the trial was conducted and guilty plea
  10. relationship with the relevant company
  11. any delay in prosecution
  12. prospects of rehabilitation
  13. relationship with the securities industry
  14. specific deterrence
  15. acceptance of pecuniary penalty order
  16. amount of money wagered
  17. any hardship to the offender's family."

Under s. 1043L, persons affected can sue for compensation for damages suffered. ASIC can also institute an action on behalf of the issuer of the financial product.

Are companies required to have a trading policy?

The ASX Listing Rules require that a listed entity must have a trading policy that complies with those rules. Rule 12.12 provides that, at a minimum, a trading policy will have to include:

  • The entity’s closed periods (fixed periods specified in the trading policy when an entity’s key management personnel are prohibited from trading in the entity’s securities);
  • The restrictions on trading that apply to the entity’s key management personnel;
  • Any trading which is not subject to the entity’s trading policy;
  • Any exceptional circumstances in which the entity’s key management personnel may be permitted to trade during a prohibited period with prior written clearance;
  • The procedures for obtaining prior written clearance for trading.

Further, where an entity makes a material change to their trading policy, the entity must give the amended trading policy to the company announcements office for release to the market within five business days of the material change taking effect.


This document is part of a Director Tools series prepared by the Australian Institute of Company Directors. This series has been designed to provide general background information and as a starting point for undertaking a board-related activity. It is not designed to replace legal advice or a detailed review of the subject matter. The material in this document does not constitute legal, accounting or other professional advice. While reasonable care has been taken in its preparation, the Australian Institute of Company Directors does not make any express or implied representations or warranties as to the completeness, currency, reliability or accuracy of the material in this document. This document should not be used or relied upon as a substitute for professional advice or as a basis for formulating business decisions. To the extent permitted by law, the Australian Institute of Company Directors excludes all liability for any loss or damage arising out of the use of the material in this document. Any links to third-party websites are provided for convenience only and do not represent endorsement, sponsorship or approval of those third parties, or any products and/or services offered by third parties, or any comment on the accuracy or currency of the information included in third party websites. The opinions of those quoted do not necessarily represent the view of the Australian Institute of Company Directors.