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This article was originally published on January 26, 2021 and has been updated to reflect recent legal developments.

This article is provided for general informational purposes only and does not create, nor shall it be construed as creating, a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. For advice on specific legal concerns, you are encouraged to engage the services of a qualified lawyer. You may also directly consult Alburo Alburo and Associates Law Offices for proper guidance tailored to your situation.

The views and information presented herein are based on the laws, rules, and jurisprudence prevailing at the time of writing. They do not take into account subsequent legal developments and should not be relied upon as a substitute for professional legal advice.

AT A GLANCE:

In trading of securities, it is unlawful for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer of the security that is not generally available to the public subject to certain exceptions:

Many might ponder on this: “Outsiders often have an insight that an insider doesn’t quite have”. The quote is attributed to Diane Abbot, and it reflects a curious tension in information access, especially in the world of securities trading.

 

In our previous discussion, we defiend securities as shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments, whether written or electronic in character.  

 

The definition and rules governing insiders are primarily found under Republic Act No. 8799 or the Securities Regulation Code, particularly Section 3.8 and related provisions on insider trading.

 

In trading securities, there are duties of an insider. So, who qualifies as an insider?

 

Under the law, the following are insiders:

 

  1. the issuer; 
  2. a director or officer (or person performing similar functions) of, or a person controlling the issuer; 
  3. a person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public; 
  4. a government employee, or director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public; or 
  5. a person who learns such information by a communication from any of the foregoing insiders. (Section 3.8, Republic Act No. 8799)

 

When is an information material nonpublic?

An information is “material nonpublic” if it has not been generally disclosed to the public and would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information; or would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security. (Section 27.2, Republic Act No. 8799)

 

In trading of securities, it is unlawful for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer of the security that is not generally available to the public unless:

 

  1. the insider proves that the information was not gained from such relationship; or
  2. if the other party selling to or buying from the insider (or his agent) is identified, the insider proves:
  3. that he disclosed the information to the other party,
  4. that he had reason to believe that the other party otherwise is also in possession of the information. (Section 27.2, Republic Act No. 8799)

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 09175772207/ 09778050020.

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