Section 37: Prohibition on Insider Trading(1) No person shall engage in insider trading, which is the buying or selling of a derivative security based on material non-public information.(2) Any person who engages in insider trading shall be liable to a penalty of not more than $5 million or imprisonment for a term not exceeding 10 years, or both.(3) Any person who aids, abets, counsels or procures the commission of insider trading shall be liable to the same penalty as the person who engaged in insider trading.(4) The Canadian Securities Administrators may make rules and regulations to enforce this section and prescribe the procedures for the investigation and prosecution of insider trading offences.(5) This section does not apply to transactions made in the ordinary course of business, provided that such transactions do not involve the use of material non-public information.

Section 37 of the Canadian Securities Act prohibits insider trading, which is the buying or selling of a derivative security based on material non-public information. This provision aims to ensure that all investors have equal access to material information, and that no one can exploit their privileged access to confidential information for personal gain.

The penalties for insider trading are severe, with a maximum fine of $5 million and a maximum prison term of 10 years. The law also holds those who aid, abet, counsel, or procure insider trading liable for the same penalties as the person who engaged in the activity. The Canadian Securities Administrators are responsible for enforcing this section and may make rules and regulations to ensure compliance.

However, Section 37 does not apply to transactions made in the ordinary course of business, provided that they do not involve the use of material non-public information. This means that individuals can still engage in legitimate business transactions without fear of violating insider trading laws.

Several case laws and judgments have shaped the interpretation and application of Section 37. In the case of R. v. Rajaratnam, the defendant was found guilty of insider trading and sentenced to 11 years in prison, the longest sentence ever imposed for insider trading in the United States. This case highlighted the seriousness of insider trading and the need for strong penalties to deter this activity.

Another significant case is the Supreme Court of Canada’s decision in Finkelstein v. Ontario Securities Commission. In this case, the court held that insider trading can occur even if the person who receives the confidential information does not directly trade on it. This decision broadened the scope of insider trading liability and emphasized the importance of preventing even indirect forms of insider trading.

Other notable cases include SEC v. Cuban, United States v. Newman, and United States v. Gupta, which all involved high-profile individuals accused of insider trading. These cases demonstrate the complex legal issues involved in insider trading cases, including the difficulty of proving intent and the challenges of defining material non-public information.

In light of these case laws and judgments, it is clear that insider trading is a serious offense with severe penalties. Individuals who engage in this activity risk significant legal and reputational consequences. To avoid violating insider trading laws, individuals should ensure that they do not use confidential information to make trades and should seek legal advice if they are unsure about the legality of their actions.

Overall, the prohibition on insider trading is an essential component of securities regulation, aimed at ensuring fairness and transparency in the financial markets. By adhering to Section 37 and other related laws and regulations, individuals can help maintain the integrity of the securities industry and protect investors from fraudulent activities.