Section 45B: Prohibition of insider trading in derivatives(1) A person must not, while in possession of inside information that is not generally available, enter into or dispose of a derivative or procure another person to enter into or dispose of a derivative.(2) For the purposes of this section, a person has inside information if:(a) the person possesses information that is not generally available; and(b) the information is specific or precise enough to enable a reasonable person who is aware of the information to conclude that it would, if generally available, be likely to have a material effect on the price or value of the derivative.(3) A person who contravenes subsection (1) is guilty of an offence punishable on conviction by a fine not exceeding $1,000,000 or imprisonment for a term not exceeding 10 years, or both.(4) If a person is convicted of an offence against subsection (1), the court may, in addition to any penalty imposed, make an order disqualifying the person from managing corporations for such period as the court thinks fit.

Section 45B of the Australian Securities and Investments Commission Act 2001 (ASIC Act) prohibits insider trading in relation to derivatives. This section is designed to prevent individuals from taking advantage of confidential information that is not available to the public when trading in derivatives. A derivative is a financial instrument whose value is derived from an underlying asset, such as a stock or commodity.

The first subsection of Section 45B states that a person must not enter into or dispose of a derivative, or procure another person to do so, while in possession of inside information that is not generally available. The second subsection defines inside information as information that is not generally available and is specific or precise enough to enable a reasonable person who is aware of the information to conclude that it would have a material effect on the price or value of the derivative if it were generally available.

If a person contravenes subsection (1) of Section 45B, they are guilty of an offence punishable by a fine of up to $1,000,000 or imprisonment for up to 10 years, or both. In addition, if a person is convicted of an offence under subsection (1), the court may make an order disqualifying the person from managing corporations for a period determined by the court.

There have been several cases in Australia that have dealt with insider trading in derivatives. One such case is ASIC v. Citigroup Global Markets Australia Pty Ltd [2007] FCA 963. In this case, Citigroup was found to have engaged in insider trading in relation to a derivative product called Constant Proportion Portfolio Insurance (CPPI). Citigroup had used confidential information about the price of a stock to trade in CPPI, which resulted in a profit of $2.5 million. The court found that Citigroup had breached Section 1043A of the Corporations Act 2001, which prohibits insider trading.

Another case is ASIC v. Australian Wheat Board Ltd [2007] FCA 1623. In this case, the Australian Wheat Board was found to have engaged in insider trading by using confidential information to trade in wheat futures. The confidential information related to the Australian Wheat Board’s negotiations with the Iraqi government over wheat exports. The court found that the Australian Wheat Board had breached Section 1043A of the Corporations Act 2001.

In ASIC v. Fortescue Metals Group Ltd [2011] FCAFC 19, the court considered whether Fortescue Metals Group had engaged in insider trading in relation to a derivative product called a credit default swap (CDS). The court found that Fortescue Metals Group had engaged in misleading or deceptive conduct but had not engaged in insider trading because the information used to trade in the CDS was not confidential.

These cases illustrate the importance of complying with Section 45B and other laws that prohibit insider trading in derivatives. It is important for individuals and corporations to ensure that they do not use confidential information to gain an advantage when trading in derivatives.

In conclusion, Section 45B of the ASIC Act prohibits insider trading in derivatives and is designed to prevent individuals from taking advantage of confidential information that is not available to the public. There have been several cases in Australia that have dealt with insider trading in derivatives, and it is important for individuals and corporations to comply with this section and other laws that prohibit insider trading. Failure to comply with these laws can result in significant penalties, including fines and imprisonment.