Insider trading is prohibited under the Securities Regulation Code. It is committed when an insider sells or buys a security of the issuer while in possession of material information about the issuer or the security that is not generally available to the public (material non-public information). An 'insider' includes the issuer, its directors, officers, and controlling stockholders, and any person whose relationship with the issuer gives them access to such information, as well as those who learn the information from an insider knowing it is confidential. The rationale is fairness: those with privileged inside information should not profit at the expense of the ordinary investing public who do not have it. The insider's duty is to disclose or abstain — either disclose the material information to the public before trading, or refrain from trading. 'Material' information is that which a reasonable person would consider important in deciding to buy or sell. Tipping (passing the inside information to another who then trades) is also covered. Insider trading carries civil and criminal liability, and the SEC enforces the prohibition. The law protects the integrity of the securities market.
What Insider Trading Is
An insider trading a security while in possession of material non-public information about the issuer or security.
Who Is an Insider
The issuer, its directors, officers, and controlling stockholders, anyone whose relationship gives access to the information, and those who learn it from an insider knowing it is confidential (tippees).
Disclose or Abstain
The duty is to disclose the material information to the public before trading, or refrain from trading. Material information is what a reasonable investor would consider important. Insider trading carries civil and criminal liability.
Practical Takeaways
- Trading on material non-public information is illegal insider trading;
- Insiders and tippees are covered;
- The rule: disclose or abstain — enforced by the SEC.
Frequently Asked Questions
What is insider trading? Buying or selling a security while in possession of material non-public information about the issuer, by an insider or someone who received the information from an insider knowing it was confidential.
Who is considered an insider? The issuer, its directors, officers, and controlling stockholders, anyone whose relationship with the issuer gives access to inside information, and tippees who learn it from an insider knowing it is confidential.
What is the insider's duty? To disclose the material non-public information to the public before trading, or to abstain from trading. This is the disclose-or-abstain rule.
What is material information? Information that a reasonable person would consider important in deciding whether to buy or sell the security. Trading on it while non-public is prohibited.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.