Part 7.10 of the Corporations Act 2001 (Cth) prohibits market misconduct and certain other conduct relating to financial products and financial services.

Division 2 of Pt 7.10 deals with various kinds of prohibited conduct, other than insider trading, including market manipulation and misleading or deceptive conduct in relation to a financial product or financial service. That conduct is addressed separately. See the Prohibited Conduct Relating to Financial Products and Financial Services overview).

Division 3 of Pt 7.10 contains the insider trading prohibitions and is addressed here.

Insider trading occurs where a person (the insider), while in possession of “inside information” (price-sensitive information not generally available) which they know or ought reasonably to know is inside information:

• applies for, acquires or disposes of certain financial products (known as “relevant Div 3 financial products”) or enters into an agreement to do this (known as the trading prohibition) (see s 1043A(1) );

• procures another person to apply for, acquire or dispose of relevant Div 3 financial products or to enter into an agreement to do this (known as the procuring prohibition (see s 1043A(1) ); or

• communicates the information, or causes the information to be communicated to another person where the insider knows or ought reasonably to know that the other person is likely to:

and the relevant financial products are able to be traded on an Australia financial market (known as the communicating or "tipping" prohibition): see s 1043A(2) .

There are then three kinds of insider trading prohibitions. Engaging in insider trading is a criminal offence. The insider trading provisions are also civil penalty provisions.

As the prohibitions apply to a person who possesses inside information and engages in the relevant conduct when they know or ought reasonably to know that the information is inside information, an insider can be anyone including a corporation.

For a discussion of the policy rationales for prohibiting insider trading, see, for example,R v Mansfield at [49]–[57] (appeal dismissedMansfield v R ) andR v Firns at [40]–[63].

The insider trading provisions are complex and operate by reference to various definitions of terms found mainly in Div 3 itself. Therefore, it is important to be familiar with the structure of Div 3 which is as follows:

• subdivision A (ss 1042A–1042H ) contains definitions of the terms used in Div 3 such as “Division 3 financial products”, “generally available”, “information”, “inside information”, “material effect” and “relevant Division 3 financial products” as well as other preliminary matters; and

• Subdivision B (ss 1043A–1043O ) then contains:

There are a number of common elements which apply to each prohibition. There must be a jurisdictional connection; the conduct must relate to “Division 3 financial products”; there must be “information” which is “possessed”; that information must be “inside information” and the insider must know or ought reasonably to know that information is inside information. In addition, in each case, it will need to be determined whether any exceptions or defences may be available.

Therefore, the following considerations are relevant in determining whether there has been a contravention of the insider trading prohibitions:

• whether there is the required connection with Australia;

• whether the conduct relates to “Division 3 financial products”;

• whether there is information;

• whether the information is possessed;

• whether the information is not generally available;

• whether, if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of particular Div 3 financial products;

• whether the insider knew, or ought reasonably to have known, that:

• whether the insider:

Note that the regulations may make exemptions and modifications to Pt 7.10 (see s 1045A and Corporations Regulations 7.10.03).

Four of the common elements which apply to each of the insider trading prohibitions found in s 1043A(1) and (2) are as follows:

• there must be a jurisdictional connection as required by s 1042B ;

• the prohibited conduct must relate to “Division 3 financial products” as defined in s 1042A ;

• there must be “information” as defined in s 1042A ; and

• the information must be “possessed” by a person.

See Jurisdictional connection, Div 3 Products, information and possession of information

In addition to the above elements, the following elements are also common to each of the insider trading prohibitions:

• the information must not be “generally available” (see s 1042A definition of “inside information”). Section 1042C explains when information is generally available.

• if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of particular Div 3 financial products (see s 1042A definition of “inside information” and s 1042D ); and

• the insider must know, or ought reasonably to know, that:

See Information not generally available, materiality and insider’s knowledge

The prohibited conduct then comprises:

• the trading prohibition (see s 1043A(1)(c) );

• the procuring prohibition (s 1043A(1)(d) ); and

• the communicating or “tipping” prohibition: see s 1043A(2) .

See The prohibited conduct

Some of the cases dealing with insider trading can be found in the discussion on the various common elements which apply to each prohibition as well as in the discussion of the prohibited conduct itself. However, additional cases can also be found under this heading.

See Cases dealing with insider trading

There are a number of exceptions and defences to the insider trading provisions:

• under Corporations Regulations 2001 (Cth) reg 9.12.01 ;

• where a member withdraws from a registered scheme in accordance with s 1043B ;

• in the case of underwriters as provided for by s 1043C ;

• in respect of the acquisition of financial products or the communication of information pursuant to a legal requirement as provided for by s 1043D or 1043E ;

• where Chinese walls are in place as contemplated by ss 1043F , 1043G and 1043K ;

• in the case of a person’s own intentions or activities as set out in ss 1043H , 1042I and 1043J ; and

• as set out in s 1043M where defences are made available in a prosecution for an offence based on s 1043A(1) or (2) .

See Exceptions and defences

Contravention of the insider trading provisions can have a number of adverse consequences:

• failure to comply with them is a criminal offence; and

• the provisions are also civil penalty provisions.

See Offences and civil penalties in relation to the insider trading provisions

The court also has power under s 1043O to make a wide range of other orders where the insider trading provisions are contravened. These powers are in addition to any other orders that the court may make under any other provision of the Corporations Act. There are a number of other provisions of the Corporations Act which confer power on the court to make orders including ss 1101B , 1324 , 1324A , 1324B and 1325 .

In addition, ASIC may make banning orders under s 920A in certain circumstances.

See Other orders in relation to the insider trading provisions

See Insider trading — Checklist