Regulation on Insider Trading in Europe/USA/Africa

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The rules governing insider trading are complex and vary significantly from country to country. The extent of enforcement also varies from one country to another. The definition of an insider in one jurisdiction can be broad, and may cover not only insiders themselves but also any persons related to them, such as brokers, associates and even family members. 

A person who becomes aware of non-public information and trades on that basis may be guilty of a crime. Many jurisdictions require that such trading be reported so that the transactions can be monitored. 

Like in the United States (U.S.) trading conducted by corporate officers, key employees, directors, or significant shareholders must be reported to the regulator or publicly disclosed, usually within a few business days of the trade. In these cases, insiders are required to file a Form 4 with the U.S. Securities and Exchange Commission (SEC) when buying or selling shares of their own companies. 

The European Union (EU), in order to set the legal standards on insider trading, adopted the Market Abuse Directive (MAD), by which it defined the notion of the term “inside information.” The exact nature of the inside information must be confidential, and mustn’t have been provided to the public, either directly or indirectly. It may refer to one or more securities or to one or more issuers.  

In particular, the inside information is regarded as precise in cases where it signals the existence of current events or situations that may arise. Or an act that has happened or is expected to happen, bearing such a precision based on which someone would conclude that the information affected the prices. In addition, if the information became known to the public, it would shift the security’s price accordingly. 

In South Africa the Financial Services Board (FSB) is there to curb market abuse. It also ruled that just because someone genuinely believes that the information that they have isn’t inside information will not in itself be a defence, unless there are reasonable grounds for that belief. 

As part of its licensing requirements, the Johannesburg Stock Exchange (JSE) is required to have market surveillance capabilities. And it’s constantly detecting suspicious trading activity. The result is that it’s not that rare for matters of insider trading to be investigated and sent to the FSB’s enforcement committee. 

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