What Is Insider Trading Under PNG Law?

A company director learns at a board meeting that a major contract has been lost. Before the announcement, she sells her shares. A fund manager’s analyst hears from a friend at the mine that production will be halved, and buys put options. Both are insider trading. Division 2 of Part VII of the Capital Market Act 2015 treats it as a serious crime, and it matters to unit holders because a unit trust holds exactly the kind of listed securities the rules protect.

Who is an information insider: section 307

The test looks at the information, not the job title. A director, an auditor, a cleaner who reads a document left on a desk, or a relative told over dinner can each be an insider if the three elements are met. Section 307(2) says a listed issuer can be an insider of itself, which catches a company buying back its own shares before bad news is released. Section 307(3) applies the same test to quoted derivatives, treating information about the derivative, its underlying or the issuer of the underlying securities as inside information.

What counts as information: sections 308 to 310

Three sections widen the net. Section 308 says “information” includes matters of supposition too indefinite to be made public, a person’s intentions or likely intentions, negotiations or proposals for commercial dealings or dealings in securities, a corporation’s financial performance, the fact that a person has entered or proposes to enter transactions in securities, and “matters relating to the future”. Rumours and plans are information.

Section 309 defines when information is generally available: it must have been made known in a way that would bring it to the attention of reasonable investors in securities of that kind, and a reasonable period for it to be disseminated and assimilated must have passed. A PNGX announcement at 9.00 am is not “generally available” at 9.01 am. Deductions and conclusions drawn from public information are themselves treated as generally available (section 309(2)), which protects the analyst who works things out from published accounts.

Section 310 defines material information as information which, on becoming generally available, would or would tend to influence reasonable investors in deciding whether to acquire or dispose of the securities. The question is not whether the price actually moved but whether a reasonable investor would have cared.

Trading and tipping

Section 307(4) prohibits an insider, as principal or agent, from acquiring or disposing of the securities to which the information relates, entering an agreement to do so, or procuring an acquisition or disposal by someone else. Section 307(5) is the tipping prohibition: where trading in the securities is permitted on a stock exchange, the insider must not communicate the information, or cause it to be communicated, to another person if he knows or ought reasonably to know that the other person would or would tend to trade or to procure a third person to trade. The tippee who then trades is himself an insider under section 307(1) if he knows the information is material and not public.

Two supporting provisions close gaps. Section 311 provides that trading ordinarily permitted on a stock market is taken to be permitted even while trading in the securities is suspended, so a suspension does not create a window for tipping. Section 312 says that a person who “incites, induces, encourages or directs” an act by another is deemed to procure it, both for this Division and for the civil recovery provisions in section 325.

Penalty and burden of proof

Section 307(6) makes a contravention of subsection (4) or (5) an offence. The published text of the penalty is garbled (“1(10,000,000.00”), but read with the rest of Part VII it is plainly a fine not exceeding K10,000,000 or imprisonment for up to ten years, or both. Section 307(7) allows the Head of State to exempt classes of persons or transactions by regulation. Under section 313 the prosecution need not prove the absence of the circumstances that would bring the accused within the defences in sections 314 to 322; it is for the accused to raise them. The defences are explained in defences to insider trading.

What a company or partnership knows

Sections 314 and 315 deal with the problem that a corporation or partnership knows only what its people know. Under section 314(1) a corporation is deemed to possess information that an officer possesses and obtained in the course of his duties, or ought to know because he is an officer, and in some cases information held by an officer of a related corporation. Under section 315(2) each partner is deemed to possess what any other partner or employee knows in that capacity. A licensed fund manager or trustee whose analyst learns of an unannounced takeover is therefore deemed to know it, and a trade for the fund can be insider trading unless the “Chinese wall” arrangements in sections 314(3) and 315(3) are in place. Victims of insider trading may recover their loss under section 325, and the Commission may claim three times the insider’s advantage; see recovering losses.