New Securities Law for
Investment Advisers and Market Participants
2008
Insider Trading
Insider Trading Prohibitions
Information insider must not trade4
An information insider of a public issuer must not trade securities of the
public issuer. The prohibition applies only to trades in securities that are listed
on a registered exchange.
A listed security can be traded in many ways. Both acquiring and disposing
of securities are included. Some examples of trading in securities are:
- buying or selling on market or in an off market transaction;
- agreeing to buy a security at a future date;
- a holder of a security granting a call option over that security;
- a holder entering into an agreement to sell the security subject to fulfilling particular conditions.
Acquiring or disposing of securities as a gift or inheritance is not trading. This
means that an information insider can gift their shares without breaching the
prohibition. An information insider can also receive securities under a will
and not breach the prohibition.
Information insider must not disclose inside information5
An information insider of a public issuer must not disclose inside information to another person in some situations.
The insider must not give the information to another person if they know, or ought reasonably to know, or believe:
- that the other person will, or is likely to, trade securities of the public issuer;
- that the other person holds the securities of the public issuer and will, or is likely to, continue to hold them; or
- that the other person will, or is likely to, advise or encourage a third person to trade or hold the securities.
An insider can disclose inside information if required to do so by an Act of
Parliament or regulations made under an Act, e.g. the Income Tax Act 2004.
Information insider must not advise or encourage trading6
An information insider of a public issuer must not:
- advise or encourage another person to trade or hold securities of the public issuer; or
- advise or encourage another person to advise or encourage a third person to trade or hold securities of the public issuer.
Encourage includes incite, counsel and procure.
Exceptions
The law allows an information insider to trade or disclose material information
in some situations.
Exception for trading required by an enactment7
An insider can trade if required to do so by an Act of Parliament or regulations
made under an Act.
Exception for underwriters and sub-underwriters8
An insider of a public issuer can:
- buy or sell securities of the public issuer under an underwriting agreement or a sub-underwriting agreement;
- disclose inside information to a person for the sole purpose of negotiating an underwriting or sub-underwriting agreement with that person relating to the securities of the issuer;
- advise or encourage another person to buy, sell or hold securities for the sole purpose of persuading the person to enter into an underwriting or sub-underwriting agreement; or
- advise or encourage another person to advise or encourage a third person to buy, sell or hold securities for the sole purpose of persuading the person to enter into an underwriting or sub-underwriting agreement.
Exception for knowledge of own intentions or activities9
If a person intends to do something regarding a public issuer (such as launch a takeover offer) then the person's own knowledge of their intentions may be price-sensitive. However, having that knowledge about their own intentions or activities does not mean that the person cannot trade, so long as the person has no other inside information.
An insider's adviser who knows of the insider's proposal can advise or encourage the insider to buy, sell or hold securities. However, the adviser must have received the information through acting as the insider's adviser in relation to the securities, the issuer or the issuer's business activities. This exception applies to advisers acting in their professional capacity, for example a lawyer, accountant or investment adviser, and other advisers.
Exception for agent executing trading instruction only10
An agent who trades securities on behalf of another person on that person's specific instructions can execute that trade, even if the agent is an information insider of the public issuer. To rely on this exception, the agent must not disclose the inside information to the other person, and must not advise or encourage the other person to instruct the agent to trade.
Exception for takeovers11
An information insider can trade in securities where that trading results from
a takeover offer under the Takeovers Code.
An information insider can trade securities under a lock-up agreement which requires the insider to acquire or dispose of the securities at a fixed price under a future takeover offer that complies with the Takeovers Code.
In some situations an insider can disclose inside information to someone else to enable or encourage that other person to make a takeover offer or take part in a takeover offer. For this exception to apply the other person must be bound by a confidentiality agreement in respect of the information.
Under this exception inside information can be disclosed:
- to a prospective offeror under a prospective takeover offer under the Takeovers Code;
- to encourage competing bona fide offers to be made in competition with a takeover offer under the Takeovers Code;
- by a prospective offeror for the purpose of forming a consortium to make a takeover offer under the Takeovers Code; or
- to an independent adviser so that the adviser can make a report required by the Takeovers Code.
The directors of a company which is the target of a takeover offer under the Takeovers Code can advise or encourage the company's shareholders about trading or holding their securities.
A prospective offeror under a prospective takeover under the Takeovers Code can advise or encourage persons to buy, sell or hold securities of the public issuer for the purposes of forming a consortium to make a takeover offer.
Exception for certain redemptions of units in unit trusts12
An information insider can redeem units in a unit trust if the redemption price for each unit is calculated by reference to the underlying value of the assets of the financial business or scheme.
Exception for Reserve Bank of New Zealand13
The Reserve Bank can trade in securities issued by the Reserve Bank or the Crown even if it is an information insider.
Footnote
- Section 8C
- Section 8D
- Section 8E
- Section 9A
- Section 9B
- Section 9C
- Section 9D
- Section 9E
- Section 9F
- Section 9G
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