COVID-19 has caused increased volatility in financial markets, both in New Zealand and globally. Concerns have been raised in some offshore markets regarding potential misconduct by information insiders.
To date, the FMA and the NZX have not seen an increase in suspected breaches of inside information restrictions as a result of COVID-19 impacts. However, we are mindful of the speed with which new information is emerging, the high level of trading activity, and potential impact of financial reporting delays as a result of regulatory relief initiatives. We are also mindful that the current situation is having significant impacts (both positive and negative) on many businesses, and that there is potential for a broader range of individuals to have access to inside information. The FMA is therefore reminding the market of the restrictions placed on information insiders.
Sections 240-243 of the Financial Markets Conduct Act 2013 prohibit information insiders from trading, disclosing inside information, or advising or encouraging others to trade (or hold) the quoted products of the relevant listed issuer.
In broad terms, an information insider is a person who has material information relating to a listed issuer that is not generally available to the market. A person does not have to be an employee of a listed issuer to be an information insider.
The FMA and the NZX are liaising closely in their respective market monitoring roles. All market participants, including listed issuers and their employees, directors, corporate advisers and executing brokers also have a role to play in managing insider information risks.
NZX-listed companies should have policies in place to manage these risks, and should be particularly vigilant at this time. Listed issuers should mitigate inside information misconduct risks by:
- Controlling and limiting access to inside information,
- Retaining detailed records of information insiders, including when they received inside information and for what purpose,
- Providing a reminder to employees regarding inside information conduct prohibitions and any obligations under staff trading policies,
- Requiring employees to proactively notify the company if they disclose or come into possession of inside information (e.g. through inadvertent disclosure),
- Ensuring that the processes governing requests to trade from directors, staff, contractors and associated individuals are adequate and are followed consistently, and
- Ensuring that directors and senior managers promptly file their ongoing disclosures of dealings in relevant interests.
