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INFORMATION CONTROL IN MARKET PARTICIPANT FIRMS

Insiders

 

For the purposes of Part 1 of this Act, insider in relation to a public issuer, means-

1. The public issuer:
2. A person who, by reason of being a principal officer, or an employee, or company secretary of, or a substantial security holder in, the public issuer, has inside information about the public issuer or another public issuer:
3. A person who receives inside information in confidence from a person described in paragraph (a) or paragraph (b) of this subsection about the public issuer or another public issuer:
4. A person who, by reason of being a principal officer, or an employee, or company secretary of, or a substantial security holder in, a person described in paragraph (c) of this subsection has that inside information:
5. A person who receives inside information in confidence from a person described in paragraph (c) or paragraph (d) of this subsection about the public issuer or another public issuer:
6. A person who, by reason of being a principal officer, or an employee, or company secretary of, or a substantial security holder in, a person described in paragraph (e) of this subsection has that inside information.

23.

In this case, information relating to Marathon's intention to accept the takeover offer was relayed in the following chain:

24.

As the law proceeds from the idea that insider trading is a wrong against the company, all insiders must have a link to the company, either by virtue of their position or through the confidential receipt of information.

25.

Marathon was a substantial security holder of Wrightson on 17 and 18 June 2004. If it had inside information by reason of being a substantial security holder it would be an insider at that time, under paragraph (b) of the definition in section 3 of the Act.

26.

Paragraph (c) of the definition says that a person who receives inside information in confidence from a person described in paragraph (a) or (b) is also an insider.

27.

The hierarchical nature of the definition means that it is necessary first to determine whether Marathon was an insider under the definition in the Securities Markets Act.

Was Marathon an insider?

28.

Assuming that the information about Marathon's decision is inside information, the critical question is whether Marathon should be said to have had this information by reason of being a substantial security holder of Wrightson.

29.

Substantial security holders are included in the definition of insider to recognise that they can be given preferential treatment in terms of information disclosed to them (as opposed to other shareholders).

30.

There is no presumption in the law that a substantial security holder is an insider. They only become insiders if they have inside information, and if they hold this information by reason of being a substantial security holder.

31.

However, under section 3(2) of the Act, a substantial security holder who has inside information is presumed, in the absence of evidence to the contrary, to have that inside information by reason of being a substantial security holder.

32.

In this case the information in question originated with Marathon - it was Marathon's decision to sell. The Court of Appeal in Southern Petroleum v Haylock & Ors² discussed the requirement that information be held by a director or substantial security holder by reason of being such. The Court did not lay down any rules for assessing this, but it looked at the circumstances in which a person came to be in possession of the relevant information. On the surface, any information Marathon has about its shareholding could be seen to arise, ultimately, because it is a shareholder. This is not, we think, what the provision is aiming at. It concerns information that is held by a substantial security holder that is either obtained from the public issuer or that is otherwise peculiarly available to it by reason of it having a substantial holding. We do not think that Marathon's knowledge of its own intention could be said to arise by reason of it being a substantial security holder (as opposed to simply a shareholder).

33.

That this is correct appears to be supported by other provisions of the Securities Markets Act. If the intention to sell shares made every substantial security holder an insider, the substantial security holder would not be able to sell without first communicating its intention to the market. Part II of the Securities Markets Act sets out the law relating to substantial security holder disclosure. It requires every substantial security holder to disclose when their holding moves by 1% (of the total voting securities of the issuer). This must be done as soon as the substantial security holder knows or ought to know of the change. This could be a redundant obligation if the insider trading law required prior disclosure of a substantial security holder's intention to sell.

34.

Our conclusion then is that while the intention of a substantial security holder may be inside information, the knowledge of its own intention will not by itself make a substantial security holder an insider of a public issuer. This means that the substantial security holder can carry out its intention, and sell its shares.

35.

It follows from this that in terms of the information in question Marathon would not be an insider. We record that we are not aware that Marathon was in possession of any other inside information about Wrightson.

Were Craigs, Forsyth Barr and ASB Securities insiders?

36.

Whether or not Craigs was an insider depends on whether or not it received inside information in confidence from a person described in paragraph (a) or paragraph (b) of section 3(1) of the Act. This reflects the scheme of this legislation which imposes liability only on persons who, in addition to having inside information, have it by reason of a relationship traceable back to the public issuer.

37.

The information was received by Craigs from Marathon. It was received by ASB Securities from Craigs. If we are correct that Marathon is not an insider, then it is not a person described in paragraph (b) of section 3(1). Therefore, neither Craigs nor ASB Securities can be insiders by reason of receiving this information from Marathon.

38.

We note that in any event Craigs would be an insider only if it received inside information from another insider in confidence.

39.

We record that Craigs denies this was the case. Craigs' legal adviser informed the Commission that:

We are instructed that Marathon did not request or require ABN AMRO Craigs to keep confidential its indication that it would be accepting RPI's offer. While Marathon did indicate that it did not want RPI to use its name in a media statement (because it wished to be seen as impartial in relation to the takeover process), at no time did it ask ABN AMRO Craigs to keep the information confidential from RPI, its advisers or any other person.

40.

We also record that when asked by the Commission, Marathon said:

During the course of the conversation (name of Marathon representative) requested that the information was not released.

41.

However, as we have concluded that Marathon was not an insider there is no need for the Commission to determine the degree of confidentiality attaching to the information.

APPENDIX B - SECURITIES MARKETS ACT 1988 - PROVISIONS RELATING TO INSIDER TRADING

Inside information - section 2

Insider - section 2

Public issuer - section 2

Liability of insider who deals in securities of a public issuer - section 7(1)

Liability of insider for tipping about securities of a public issuer - section 9(1)