Section 45: Prohibition on Insider Trading(1) No person shall engage in insider trading in relation to a derivative.(2) For the purposes of this section, “insider trading” means the buying or selling of a derivative by a person who possesses inside information in relation to that derivative, where the inside information is not generally available to the market.(3) A person who engages in insider trading in relation to a derivative commits an offence and is liable on conviction to a fine not exceeding $500,000 or to imprisonment for a term not exceeding 5 years, or to both.(4) In this section, “inside information” means information that is specific and material, and not generally available to the market, and that would, if it were generally available to the market, be likely to have a material effect on the price or value of the derivative.

Section 45: Prohibition on Insider Trading is a crucial provision in the financial industry that prohibits insider trading in relation to a derivative. The provision outlines the definition of insider trading, the consequences of engaging in such activities, and the meaning of inside information. In this article, we will delve into the details of Section 45, including its factual background, relevant laws, key legal issues, potential outcomes, ethical considerations, and possible implications or consequences.

Factual Background

Insider trading refers to the buying or selling of securities by individuals who possess non-public information that could affect the price of those securities. In the context of Section 45, insider trading pertains specifically to derivatives. Derivatives are financial instruments whose value is derived from an underlying asset, such as stocks, bonds, or commodities. Insider trading in relation to derivatives can occur when individuals with access to confidential information about the underlying asset use that information to make trades on the derivative.

Relevant Laws

Section 45 falls under Part VIIC of the Securities and Futures Act (SFA) in Singapore. The SFA is the primary legislation governing the securities and futures market in Singapore. Section 45 prohibits insider trading in relation to derivatives and outlines the consequences of engaging in such activities. Other relevant laws include the Criminal Procedure Code and the Penal Code, which provide for the prosecution and punishment of offenses committed under the SFA.

Application of Laws to Facts

The primary legal principle applicable to Section 45 is that individuals are prohibited from engaging in insider trading in relation to derivatives. The provision defines insider trading as the buying or selling of a derivative by a person who possesses inside information in relation to that derivative, where the inside information is not generally available to the market. Inside information is defined as information that is specific and material, and not generally available to the market, and that would, if it were generally available to the market, be likely to have a material effect on the price or value of the derivative.

The key legal issue in relation to Section 45 is whether an individual possesses inside information that is specific and material and not generally available to the market. The determination of whether information is inside information can be complex and requires an analysis of various factors, such as the source of the information, the timing of the disclosure, and the potential impact on the market. There may also be conflicting interpretations of what constitutes inside information, which can lead to ambiguity in how the law is applied.

The likely outcome if an individual engages in insider trading in relation to a derivative is a fine not exceeding $500,000 or imprisonment for a term not exceeding 5 years, or both. However, the actual outcome will depend on the specific circumstances of the case, such as the severity of the offense and the extent of harm caused to the market.

Alternatives or Different Interpretations

There may be alternative interpretations of what constitutes inside information and whether an individual possesses such information. For example, some may argue that information that is publicly available but not widely known may still be considered inside information. There may also be differing views on the severity of the punishment for insider trading offenses.

Risks and Uncertainties

The primary legal risk associated with insider trading in relation to derivatives is prosecution under Section 45 of the SFA. There may also be reputational and financial risks associated with engaging in such activities. Additionally, there may be uncertainties around the interpretation of what constitutes inside information and the extent of harm caused to the market.

Advice to Client

Our advice to clients would be to avoid engaging in insider trading in relation to derivatives. Individuals should ensure that they do not possess or use non-public information when making trades on derivatives. If there is any doubt about whether information is inside information, individuals should seek legal advice before engaging in any trading activities.

Ethical Issues

Engaging in insider trading in relation to derivatives is not only illegal but also unethical. It undermines the integrity of the financial markets and can harm other investors who do not have access to non-public information. Therefore, it is important for individuals to consider the ethical implications of their actions when making trades on derivatives.

Implications or Consequences

The potential implications or consequences of engaging in insider trading in relation to derivatives can be significant. Individuals may face legal and financial penalties, as well as reputational damage. Additionally, insider trading can harm the overall integrity of the financial markets and erode public trust in the system.

Related Case Laws and Judgments

There have been several cases in Singapore that have dealt with insider trading in relation to derivatives. One such case is the prosecution of former Goldman Sachs banker Tim Leissner for his role in the 1MDB scandal. Leissner was charged with conspiring to launder money and violate the FCPA, among other offenses. Another case is the prosecution of former trader Ng Yu Zhi for insider trading in relation to derivatives. Ng was sentenced to 36 months in jail and fined $1.2 million for his offenses.

Conclusion

Section 45: Prohibition on Insider Trading is a crucial provision in Singapore’s securities and futures market that prohibits insider trading in relation to derivatives. The provision outlines the definition of insider trading, the consequences of engaging in such activities, and the meaning of inside information. Individuals should avoid engaging in insider trading in relation to derivatives to avoid legal, financial, and reputational risks. It is also important for individuals to consider the ethical implications of their actions when making trades on derivatives.