Financial Services Reform Act 2001 (122 of 2001)
Schedule 1 Financial Services and Markets
Part 1 Main amendments
Corporations Act 2001
1 Chapter 7 - Part 7.10 - Division 3
Division 3 - The insider trading prohibitions
Subdivision A - Preliminary
1042A Definitions
In this Division:
able to be traded has a meaning affected by section 1042E.
Division 3 financial products means:
(a) securities; or
(b) derivatives; or
(c) managed investment products; or
(d) superannuation products, other than those prescribed by regulations made for the purposes of this paragraph; or
(e) any other financial products that are able to be traded on a financial market.
generally available , in relation to information, has the meaning given by section 1042C.
information includes:
(a) matters of supposition and other matters that are insufficiently definite to warrant being made known to the public; and
(b) matters relating to the intentions, or likely intentions, of a person.
inside information means information in relation to which the following paragraphs are satisfied:
(a) the information is not generally available;
(b) if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of particular Division 3 financial products.
material effect , in relation to a reasonable person’s expectations of the effect of information on the price or value of Division 3 financial products, has the meaning given by section 1042D.
procure has a meaning affected by section 1042F.
relevant Division 3 financial products , in relation to particular inside information, means the Division 3 financial products referred to in paragraph (b) of the definition of inside information .
1042B Application of Division
This Division applies to:
(a) acts and omissions within this jurisdiction in relation to Division 3 financial products (regardless of where the issuer of the products is formed, resides or located and of where the issuer carries on business); and
(b) acts and omissions outside this jurisdiction (and whether in Australia or not) in relation to Division 3 financial products issued by:
(i) a person who carries on business in this jurisdiction; or
(ii) a body corporate that is formed in this jurisdiction.
1042C When information is generally available
(1) For the purposes of this Division, information is generally available if:
(a) it consists of readily observable matter; or
(b) both of the following subparagraphs apply:
(i) it has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in Division 3 financial products of a kind whose price might be affected by the information; and
(ii) since it was made known, a reasonable period for it to be disseminated among such persons has elapsed; or
(c) it consists of deductions, conclusions or inferences made or drawn from either or both of the following:
(i) information referred to in paragraph (a);
(ii) information made known as mentioned in subparagraph (b)(i).
(2) None of the paragraphs of subsection (1) limits the generality of any of the other paragraphs of that subsection.
1042D When a reasonable person would take information to have a material effect on price or value of Division 3 financial products
For the purposes of this Division, a reasonable person would be taken to expect information to have a material effect on the price or value of particular Division 3 financial products if (and only if) the information would, or would be likely to, influence persons who commonly acquire Division 3 financial products in deciding whether or not to acquire or dispose of the first-mentioned financial products.
1042E Division 3 financial products taken to be able to be traded despite suspensions or section 794D directions
Particular Division 3 financial products that are ordinarily able to be traded on a licensed market are taken, for the purposes of this Division, to be able to be traded on that market even though trading in those products on that market is suspended by action taken by the market licensee, or is contrary to a direction given to the market licensee by ASIC under subsection 794D(2).
1042F Inciting, inducing or encouraging an act or omission constitutes procuring the omission
(1) For the purposes of this Division, but without limiting the meaning that the expression procure has apart from this section, if a person incites, induces, or encourages an act or omission by another person, the first-mentioned person is taken to procure the act or omission by the other person.
(2) Subsection (1) does not limit the application in relation to provisions in this Division of:
(a) section 6 of theCrimes Act 1914; or
(b) section 11.1, 11.2, 11.4 or 11.5 of theCriminal Code.
1042G Information in possession of officer of body corporate
(1) For the purposes of this Division:
(a) a body corporate is taken to possess any information which an officer of the body corporate possesses and which came into his or her possession in the course of the performance of duties as such an officer; and
(b) if an officer of a body corporate knows any matter or thing because he or she is an officer of the body corporate, it is to be presumed that the body corporate knows that matter or thing; and
(c) if an officer of a body corporate, in that capacity, is reckless as to a circumstance or result, it is to be presumed that the body corporate is reckless as to that circumstance or result; and
(d) for the purposes of paragraph 1043M(2)(b), if an officer of a body corporate ought reasonably to know any matter or thing because he or she is an officer of the body corporate, it is to be presumed that the body corporate ought reasonably to know that matter or thing.
(2) This section does not limit the application of section 769B in relation to this Division.
1042H Information in possession of partner or employee of partnership
(1) For the purposes of this Division:
(a) a member of a partnership is taken to possess any information:
(i) which another member of the partnership possesses and which came into the other member’s possession in the other member’s capacity as a member of the partnership; or
(ii) which an employee of the partnership possesses and which came into his or her possession in the course of the performance of duties as such an employee; and
(b) if a member or employee of a partnership knows any matter or thing because the member or employee is such a member or employee, it is to be presumed that every member of the partnership knows that matter or thing; and
(c) if a member or employee of a partnership, in that capacity, is reckless as to a circumstance or result, it is to be presumed that every member of the partnership is reckless as to that circumstance or result; and
(d) for the purposes of paragraph 1043M(2)(b), if a member or employee of a partnership ought reasonably to know any matter or thing because he or she is such a member or employee, it is to be presumed that every member of the partnership ought reasonably to know that matter or thing.
(2) This section does not limit the application of section 769B in relation to this Division.
Subdivision B - The prohibited conduct
1043A Prohibited conduct by person in possession of inside information
(1) Subject to this Subdivision, if:
(a) a person (the insider ) possesses inside information; and
(b) the insider knows, or ought reasonably to know, that the matters specified in paragraphs (a) and (b) of the definition of inside information in section 1042A are satisfied in relation to the information;
the insider must not (whether as principal or agent):
(c) apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products; or
(d) procure another person to apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products.
Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)). For defences to a prosecution based on this subsection, see section 1043M.
Note 2: This subsection is also a civil penalty provision (see section 1317E). For relief from liability to a civil penalty relating to this subsection, see sections 1043N and 1317S.
(2) Subject to this Subdivision, if:
(a) a person (the insider ) possesses inside information; and
(b) the insider knows, or ought reasonably to know, that the matters specified in paragraphs (a) and (b) of the definition of inside information in section 1042A are satisfied in relation to the information; and
(c) relevant Division 3 financial products are able to be traded on a financial market operated in this jurisdiction;
the insider must not, directly or indirectly, communicate the information, or cause the information to be communicated, to another person if the insider knows, or ought reasonably to know, that the other person would or would be likely to:
(d) apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products; or
(e) procure another person to apply for, acquire, or dispose of, relevant Division 3 financial products, or enter into an agreement to apply for, acquire, or dispose of, relevant Division 3 financial products.
Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)). For defences to a prosecution based on this subsection, see section 1043M.
Note 2: This subsection is also a civil penalty provision (see section 1317E). For relief from liability to a civil penalty relating to this subsection, see sections 1043N and 1317S.
(3) For the purposes of the application of theCriminal Codein relation to an offence based on subsection (1) or (2):
(a) paragraph (1)(a) is a physical element, the fault element for which is as specified in paragraph (1)(b); and
(b) paragraph (2)(a) is a physical element, the fault element for which is as specified in paragraph (2)(b).
1043B Exception for withdrawal from registered scheme
Subsection 1043A(1) does not apply in respect of a member’s withdrawal from a registered scheme if the amount paid to the member on withdrawal is calculated (so far as is reasonably practicable) by reference to the underlying value of the assets of the financial or business undertaking or scheme, common enterprise, investment contract or time-sharing scheme to which the member’s interest relates, less any reasonable charge for acquiring the member’s interest.
1043C Exception for underwriters
(1) Subsection 1043A(1) does not apply in respect of:
(a) applying for or acquiring securities or managed investment products under an underwriting agreement or a sub-underwriting agreement; or
(b) entering into an agreement referred to in paragraph (a); or
(c) disposing of securities or managed investment products acquired under an agreement referred to in paragraph (a).
(2) Subsection 1043A(2) does not apply in respect of:
(a) the communication of information in relation to securities or managed investment products to a person solely for the purpose of procuring the person to enter into an underwriting agreement in relation to any such securities or managed investment products; or
(b) the communication of information in relation to securities or managed investment products by a person who may be required under an underwriting agreement to apply for or acquire any such securities or managed investment products if the communication is made to another person solely for the purpose of procuring the other person to do either or both of the following:
(i) enter into a sub-underwriting agreement in relation to any such securities or managed investment products;
(ii) apply for any such securities or managed investment products.
1043D Exception for acquisition pursuant to legal requirement
Subsection 1043A(1) does not apply in respect of the acquisition of financial products pursuant to a requirement imposed by this Act.
1043E Exception for information communicated pursuant to a legal requirement
Subsection 1043A(2) does not apply in respect of the communication of information pursuant to a requirement imposed by the Commonwealth, a State, a Territory or any regulatory authority.
1043F Chinese wall arrangements by bodies corporate
A body corporate does not contravene subsection 1043A(1) by entering into a transaction or agreement at any time merely because of information in the possession of an officer of the body corporate if:
(a) the decision to enter into the transaction or agreement was taken on its behalf by a person or persons other than that officer; and
(b) it had in operation at that time arrangements that could reasonably be expected to ensure that the information was not communicated to the person or persons who made the decision and that no advice with respect to the transaction or agreement was given to that person or any of those persons by a person in possession of the information; and
(c) the information was not so communicated and no such advice was so given.
1043G Chinese wall arrangements by partnerships etc.
(1) The members of a partnership do not contravene subsection 1043A(1) by entering into a transaction or agreement at any time merely because one or more (but not all) of the members, or an employee or employees of the partnership, are in actual possession of information if:
(a) the decision to enter into the transaction or agreement was taken on behalf of the partnership by any one or more of the following persons:
(i) a member or members who are taken to have possessed the information merely because another member or other members, or an employee or employees of the partnership, were in possession of the information;
(ii) an employee or employees of the partnership who was not or were not in possession of the information; and
(b) the partnership had in operation at that time arrangements that could reasonably be expected to ensure that the information was not communicated to the person or persons who made the decision and that no advice with respect to the transaction or agreement was given to that person or any of those persons by a person in possession of the information; and
(c) the information was not so communicated and no such advice was so given.
(2) A member of a partnership does not contravene subsection 1043A(1) by entering into a transaction or agreement otherwise than on behalf of the partnership merely because the member is taken to possess information that is in the possession of another member or an employee of the partnership.
1043H Exception for knowledge of person’s own intentions or activities
A natural person does not contravene subsection 1043A(1) by entering into a transaction or agreement in relation to financial products issued by another person merely because the person is aware that he or she proposes to enter into, or has previously entered into, one or more transactions or agreements in relation to financial products issued by that other person.
1043I Exception for bodies corporate
(1) A body corporate does not contravene subsection 1043A(1) by entering into a transaction or agreement in relation to financial products issued by another person merely because the body corporate is aware that it proposes to enter into, or has previously entered into, one or more transactions or agreements in relation to financial products issued by the other person.
(2) Subject to subsection (3), a body corporate does not contravene subsection 1043A(1) by entering into a transaction or agreement in relation to financial products issued by another person merely because an officer of the body corporate is aware that the body corporate proposes to enter into, or has previously entered into, one or more transactions or agreements in relation to financial products issued by the other person.
(3) Subsection (2) does not apply unless the officer of the body corporate became aware of the matters referred to in that subsection in the course of the performance of duties as such an officer.
1043J Exception for officers or agents of body corporate
(1) Subject to subsection (2), a person (the first person ) does not contravene subsection 1043A(1) by entering into a transaction or agreement on behalf of a person (the second person ) in relation to financial products issued by another person (the third person ) merely because the first person is aware that the second person proposes to enter into, or has previously entered into, one or more transactions or agreements in relation to financial products issued by the third person.
(2) Subsection (1) does not apply unless the first person became aware of the matters referred to in that subsection in the course of the performance of duties as an officer of the second person or in the course of acting as an agent of the second person.
1043K Transactions by holder of financial services licence or a representative of the holder of such a licence
A person (the agent ) does not contravene subsection 1043A(1) by applying for, acquiring, or disposing of, or entering into an agreement to apply for, acquire, or dispose of, financial products that are able to be traded on a licensed market if:
(a) the agent is a financial services licensee or a representative of a financial services licensee; and
(b) the agent entered into the transaction or agreement concerned on behalf of another person (the principal ) under a specific instruction by the principal to enter into that transaction or agreement; and
(c) the licensee had in operation, at the time when that transaction or agreement was entered into, arrangements that could reasonably be expected to ensure that any information in the possession of the licensee, or of any representative of the licensee, as a result of which the person in possession of the information would be prohibited by subsection 1043A(1) from entering into that transaction or agreement was not communicated to the agent and that no advice with respect to the transaction or agreement was given to the principal or to the agent by a person in possession of the information; and
(d) the information was not so communicated and no such advice was so given; and
(e) the principal is not an associate of the licensee or of any representative of the licensee;
but nothing in this section affects the application of subsection 1043A(1) in relation to the principal.
1043L A specific situation in which a compensation order under section 1317HA may be made
Situation to which this section applies
(1) If:
(a) a person (the insider ) possesses information that is not generally available but, if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of Division 3 financial products (other than derivatives); and
(b) the insider knows that, or is reckless as to whether:
(i) the information is not generally available; and
(ii) if the information were generally available, it might have a material effect on the price or value of those Division 3 financial products; and
(c) the insider (whether as principal or agent) in contravention of subsection 1043A(1):
(i) applies for, acquires, or disposes of, or enters into an agreement to apply for, acquire, or dispose of, any such Division 3 financial products; or
(ii) procures another person to apply for, acquire, or dispose of, or to enter into an agreement to apply for, acquire, or dispose of, any such Division 3 financial products;
the following subsections apply.
Compensation for damage suffered by person applying for the Division 3 financial products
(2) If the insider applied for or agreed to apply for, or procured another person to apply for or to agree to apply for, the Division 3 financial products, the issuer of the products may, by action under section 1317HA, recover as compensation for damage suffered by the issuer, the amount (if any) by which the price described in the first of the following paragraphs was less than the price described in the second of those paragraphs:
(a) the price at which the products were applied for, or agreed to be applied for, by the insider or the other person;
(b) the price at which they would have been likely to have been disposed of in a disposal made at the time of the application or the time of the agreement, as the case may be, if the information had been generally available.
The action may be taken against the insider, the other person or any other person involved in the contravention.
Compensation for damage suffered by person disposing of the Division 3 financial products
(3) If the insider acquired or agreed to acquire, or procured another person to acquire or to agree to acquire, the Division 3 financial products from a person (in this subsection and subsection (5) called the disposer ) who did not possess the information, the disposer may, by action under section 1317HA, recover, as compensation for damage suffered by the disposer, the amount (if any) by which the price described in the first of the following paragraphs was less than the price described in the second of those paragraphs:
(a) the price at which the financial products were acquired, or agreed to be acquired, by the insider or the other person from the disposer;
(b) the price at which they would have been likely to have been acquired in an acquisition made at the time of the first-mentioned acquisition or the time of the agreement, as the case may be, if the information had been generally available.
The action may be taken against the insider, the other person or any other person involved in the contravention.
Compensation for damage suffered by person acquiring the Division 3 financial products
(4) If the insider disposed of or agreed to dispose of, or procured another person to dispose of or to agree to dispose of, the Division 3 financial products to a person (in this subsection and subsection (5) called the acquirer ) who did not possess the information, the acquirer may, by action under section 1317HA, recover, as compensation for damage suffered by the acquirer, the amount (if any) by which the price described in the first of the following paragraphs was greater than the price described in the second of those paragraphs:
(a) the price at which the financial products were disposed of, or agreed to be disposed of, by the insider or the other person to the acquirer;
(b) the price at which they would have been likely to have been disposed of in a disposal made at the time of the first-mentioned disposal or the time of the agreement, as the case may be, if the information had been generally available.
The action may be taken against the insider, the other person or any other person involved in the contravention.
Additional situations in which issuer may recover
(5) In addition to any action that may be brought as provided by subsection (3) or (4), the issuer of the financial products may, in the case of an acquisition or disposal of, or an agreement to acquire or dispose of, the financial products by the insider or another person in the circumstances mentioned in that subsection, by action under section 1317HA, recover, as compensation for damage suffered by the issuer:
(a) in the case of an acquisition or agreement to acquire the financial products - the amount (if any) by which the price described in the first of the following subparagraphs was less than the price described in the second of those subparagraphs:
(i) the price at which the financial products were acquired, or agreed to be acquired, by the insider or other person from the disposer;
(ii) the price at which they were likely to have been acquired in an acquisition made at the time of the first-mentioned acquisition or the time of the agreement, as the case may be, if the information had been generally available; or
(b) in the case of a disposal or an agreement to dispose of financial products - the amount (if any) by which the price described in the first of the following subparagraphs was greater than the price described in the second of those subparagraphs:
(i) the price at which the financial products were disposed of, or agreed to be disposed of, by the insider or other person to the acquirer;
(ii) the price at which they would have been likely to have been disposed of at the time of the first-mentioned disposal or the time of the agreement, as the case may be, if the information had been generally available.
The action may be taken against the insider, the other person or any other person involved in the contravention.
ASIC may take action for benefit of issuer
(6) ASIC may, if it considers that it is in the public interest to do so, bring an action in accordance with subsection (2) or (5) in the name of, and for the benefit of, an issuer of Division 3 financial products for the recovery of an amount that the issuer is entitled to recover by virtue of that subsection.
Relief from liability
(7) In an action brought against a person in accordance with this section because the person entered into, or procured another person to enter into, a transaction or agreement at a time when certain information was in the first-mentioned person’s possession, the court may relieve the person wholly or partly from liability if it appears to the court that the information came into the first-mentioned person’s possession solely as a result of the information having been made known as mentioned in subparagraph 1042C(1)(b)(i).
Special provision for registered schemes - treatment of amount recovered in respect of subsection (2) loss
(8) If:
(a) the responsible entity for a registered scheme; or
(b) ASIC in the name of, and for the benefit of, the responsible entity for a registered scheme;
brings an action in accordance with subsection (2) in respect of a subscription for, or any agreement to subscribe for, any interests in the scheme, any amount recovered in the action:
(c) is to be held by the responsible entity on behalf of the persons who, at the time of the subscription or agreement, had rights or interests in the relevant financial or business undertaking or scheme, common enterprise, investment contract or time-sharing scheme; and
(d) is to be held on their behalf in the respective proportions that, at that time, their individual rights or interests bore to the total of all those rights or interests.
Special provision for registered schemes - treatment of amount recovered in respect of subsection (5) loss
(9) If:
(a) the responsible entity for a registered scheme; or
(b) ASIC in the name of, and for the benefit of, the responsible entity for a registered scheme;
brings an action in accordance with subsection (5) in respect of an acquisition or disposal of, or an agreement to acquire or dispose of, interests in the scheme, any amount recovered in the action:
(c) is to be held by the responsible entity on behalf of the persons who, at the time of the disposal, acquisition or agreement, had rights or interests in the relevant financial or business undertaking or scheme, common enterprise, investment contract or time-sharing scheme; and
(d) is to be held on their behalf in the respective proportions that, at that time, their individual rights or interests bore to the total of all those rights or interests.
(10) Any right of action that a person has by virtue of this section is in addition to any right that any other person has under section 1317HA.
1043M Defences to prosecution for an offence
(1) In a prosecution of a person for an offence based on subsection 1043A(1) or (2), it is not necessary for the prosecution to prove the non-existence of facts or circumstances which, if they existed, would, by virtue of section 1043B, 1043C, 1043D, 1043E, 1043F, 1043G, 1043H, 1043I, 1043J or 1043K, preclude the act or omission from constituting a contravention of subsection 1043A(1) or (2), as the case may be, but it is a defence if the facts or circumstances existed.
Note: A defendant bears an evidential burden in relation to the facts or circumstances. See subsection 13.3(3) of theCriminal Code.
(2) In a prosecution brought against a person for an offence based on subsection 1043A(1) because the person entered into, or procured another person to enter into, a transaction or agreement at a time when certain information was in the first-mentioned person’s possession:
(a) it is a defence if the information came into the first-mentioned person’s possession solely as a result of the information having been made known as mentioned in subparagraph 1042C(1)(b)(i); and
(b) it is a defence if the other party to the transaction or agreement knew, or ought reasonably to have known, of the information before entering into the transaction or agreement.
Note: A defendant bears an evidential burden in relation to the matters referred to in paragraphs (a) and (b). See subsection 13.3(3) of theCriminal Code.
(3) In a prosecution against a person for an offence based on subsection 1043A(2) because the person communicated information, or caused information to be communicated, to another person:
(a) it is a defence if the information came into the first-mentioned person’s possession solely as a result of the information having been made known as mentioned in subparagraph 1042C(1)(b)(i); and
(b) it is a defence if the other person knew, or ought reasonably to have known, of the information before the information was communicated.
Note: A defendant bears an evidential burden in relation to the matters referred to in paragraphs (a) and (b). See subsection 13.3(3) of theCriminal Code.
1043N Relief from civil liability
In proceedings against a person under Part 9.4B (including under section 1317HA) relating to a contravention of subsection 1043A(1) or (2), the court may relieve the person wholly or partly from liability if it appears to the court that:
(a) in any case - the circumstances in any of the sections referred to in subsection 1043M(1) applied; or
(b) in the case of subsection 1043A(1) - the circumstance referred to in paragraph 1043M(2)(a) or (b) applied; or
(c) in the case of subsection 1043A(2) - the circumstance referred to in paragraph 1043M(3)(a) or (b) applied.
1043O Powers of Court
If, in a proceeding instituted under this Act, the Court finds that a contravention of section 1043A has occurred, the Court may, in addition to any other orders that it may make under any other provision of this Act, make such order or orders as it thinks just, including, but without limiting the generality of the above, any one or more of the following orders:
(a) an order restraining the exercise of rights attached to Division 3 financial products;
(b) an order restraining the issue of Division 3 financial products;
(c) an order restraining the acquisition or disposal of Division 3 financial products;
(d) an order directing the disposal of Division 3 financial products;
(e) an order vesting Division 3 financial products in ASIC;
(f) an order cancelling an agreement for the acquisition or disposal of Division 3 financial products;
(g) an order cancelling an Australian financial services licence;
(h) for the purpose of securing compliance with any other order made under this section, an order directing a person to do or refrain from doing a specified act.