The use of privileged information by an 'insider' for the purposes of gain (or to avoid a loss) at the expense of others is morally and legally reprehensible and therefore concepts of inside information, price-sensitive information, and insider trading are a number of the practices prohibited by the Financial Markets Act (“FMA”).
A company director, employee, adviser or even a journalist becomes an insider when he or she is made aware of a proposed transaction that could affect the price or value of a listed security.
Inside information is defined as specific or precise information, which has not been made public and which is obtained or learned as an insider. The FMA introduced five insider trading offences:
- Dealing in securities for one's own account, while in possession of insider information;
- Dealing in securities on behalf of another person, while in possession of inside information;
- Dealing in securities for an insider;
- Disclosing inside information to another person;
- Encouraging or discoursing another person to deal in securities based upon inside information.
The regulator (the FSB) can choose to act on reports of alleged insider trading activity compiled by the Market Regulation Division of the JSE or tip-offs from other sources. Therefore, when publishing information in terms of the JSE Listings Requirements, it is important to note that issuers may not release the information before any price-sensitive information have been distributed to a broad audience published via SENS.