2. Description of New Zealand's Insider Trading Law
2.1 New Zealand's insider trading law is found in three sources, the most important of which is Part 1 of the Securities Amendment Act 1988.
2.2 At common law, in certain circumstances a shareholder can recover from a director of a company, where the director purchased shares from the shareholder while having material information not available to the shareholder. However, a fiduciary relationship or other special relationship between the parties is necessary and this is normally not the case in a market transaction. See Coleman v Myers [1977] 2 NZLR 225.
2.3 The Companies Act 1993 contains provisions relevant to insider trading:
- section 145 restricts the use of company information by company directors;
- section 148 requires directors to disclose share dealings to the board and these disclosures must be entered in the company's interests register and disclosed in the next annual report; and
- section 149 requires the sale and purchase of securities by a director who has material information in his or her capacity as a director or employee of the company to be at fair value determined on the basis of all information known to the director or publicly available. This section does not apply to a company to which Part 1 of the SA Act 1988 applies.
Part 1 of Securities Amendment Act 1988
2.4 Paragraphs 2.6 to 2.14 below provide a brief summary of this Part, which applies to the use of inside information relating to entities that are, or were, listed on a New Zealand stock exchange.
2.5 The key definitions are:
"Public issuer" means a company or other entity that is or was listed on a New Zealand stock exchange;
"Inside information" means information that is not publicly available but would be likely to affect materially the price of securities of a public issuer if it were publicly available;
"Insider" means, in relation to a public issuer, -
- the public issuer itself;
- a director or employee or substantial security holder of the public issuer who has inside information about the public issuer or another public issuer; or
- a person who receives in confidence inside information about the public issuer or another public issuer from any of the persons referred to above.
Insider dealing
2.6 Under section 7, an insider who has inside information about a public issuer and who buys or sells securities is liable to -
- the person who sold or bought the securities, for any loss incurred by that person; and
- the public issuer, for the amount of any gain made or loss avoided by the insider plus a pecuniary penalty (but the penalty is not to exceed the greater of the consideration for the securities, or three times the amount of the gain made or loss avoided by the insider).
2.7 There are the following exceptions from section 7 -
- if the securities are bought or sold in accordance with a procedure approved by the Commission;
- if the purchase of securities results from a takeover offer made under the Companies Amendment Act 1963 or the Takeovers Code; and
- if the sale or purchase of securities was made in accordance with appropriate "chinese wall" procedures.
2.8 Sections 11 and 13 provide for similar liability, and exceptions, in respect of dealings by an insider of a public issuer who has inside information about another public issuer.
Tipping
2.9 Under section 9, an insider who has inside information about a public issuer and who encourages another person to buy or sell securities, or provides information to a person believing that the tippee will buy or sell securities, is liable to -
- any person who sells or buys securities from the tippee, for the loss incurred by that person; and
- the public issuer, for any consideration received by the insider, any gains made or losses avoided by the tippees, and a pecuniary penalty (but the penalty is not to exceed the greater of the consideration for the securities, or three times the amount of the gain made or loss avoided).
2.10 There is an exception to section 9 if the person acted in accordance with a "chinese wall" procedure.
2.11 Sections 13 and 14 contain similar provisions in relation to tipping about securities of another public issuer.
Lawyer's opinion
2.12 Under section 17, a shareholder or former shareholder of a public issuer may, with the prior approval of the Commission, require the public issuer to obtain an opinion from a lawyer on whether or not the public issuer has a cause of action against an insider. The public issuer is required to supply all relevant information to the lawyer, and must pay the lawyer's fees.
Proceedings by shareholders
2.13 Under section 18, a public issuer's right of action against an insider may, with the leave of the High Court, be exercised by a shareholder or former shareholder of the public issuer. The public issuer must pay the costs of a person to whom leave is given.
Distribution of amount recovered by public issuer from insider
2.14 Under section 19, any money recovered by a public issuer from an insider must be held by the public issuer on trust for distribution in accordance with the directions of the High Court. The Court may order that the amount be distributed to shareholders or former shareholders, retained by the public issuer, or paid for charitable purposes.
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