1. INSIDER DEALING IN
COMPANY LAW
A.ARJUN
2009/L/024
FINAL YEAR,
DEPT. OF LAW,
UNIVERSITY OF JAFFNA.

2. What is insider dealing ?
“An insider of the company, who is in possession of unpublished price sensitive
information, to trade in securities of that company or to trade in securities of a related
company, with a view to the making of profit or the avoidance of a loss”.
Insider dealing is in essence an offence relating to the abuse of information, We are
living in a informational age and the information could be categorized as valuable
property. The traditional offences theft, misappropriation and criminal breach of trust
are applicable in the spectrum of the misuse of property.
Lord Advocate V Mackie, Raj Rajaratnam Issue ( US Securities and Exchange
Commission Act 2003) and The film ‘WALL STREET’
Sri Lanka is a state party of the International Organization of Securities Commissions
( IOSCO). It have the duty to act per the key objectives of IOSCO

3. Why it should prohibited ?
01.To maintain the fairness and integrity of the share market.
02.Under the Law of contracts it is undue advantage
03.In Criminal charge the use of unpublished information, is considered as
actus reus
The prime justifications for insider dealing (Victimless Offence)
01. It promote economic efficiently of the share market.
02. It is the consideration for the employees for their innovation or efforts
03. Concept of Fiduciary duty (Percival V Wright)
Legislations to prohibit the insider dealing in SL
01. SECURITIES AND EXCHANGE COMMISSION OF SRI LANKAACT NO. 36 OF 1987 AS
AMENDED BY ACT NO. 26 OF 1991, ACT NO. 18 OF 2003 AND ACT NO. 47 OF 2009 ,
Part IV, sections 32-35.
02. The Companies Act No 7 of 2007, Provisions 197 and 200
03.The Company Take-Over and Mergers Code, 1995

4. Analyzes the provisions of SEC Act with the comparative view of US and UK
legislations.
US-US securities and Exchange Commission Act 2003.
UK-Criminal Justice Act of 1993 (CJA)
Financial Services and Markets Act 2000 (FSMA)
Defenses under the SEC Act of SL
I.32(8) (a)-“Otherwise than with the view to the making of a profit or avoidance of loss
II.32(8)(c) –”A stock broker or dealer doing any thing “in good faith in the course of that business”
III. 32(9) – ‘to facilitate the completion or carrying out of transection.
01.Sider and Source (In/Out)
32(1) (a) (b) (c) – Restrict the trading activities by insiders on listed securities.
UK refer to “Legal Entities and Natural Persons” But SL SEC Act S-32 refer as “ Individuals”. S-33A refers
“any person”. Therefore there is no harmony between S-32 and S-33A. The applicability of 51(3) is general
not specify like 33A for insider dealing
UK CJA replaced the requirement ‘Connection with the company” by “Access to information” test. SL SEC
never replace but make two fold test under 2003 Amendment S-34(1)(C). But give the scope for liability by
“Informational Advantage” rather than “status”.

5. The requirement the price sensitive information from an inside source is no more applicable in
SL. In US issue on Case of Heard on the street column on wall street journal. But UK in this
aspect needs that the inside information to come from an inside source.
02.Unpublished Price Sensitive Information
Section 34 (2) (b) of SL SEC Act gives a very problematic definition for “Price Sensitive Information While
concerning Section 58 of CJA (UK). The CSE listing rules also explain what is mean by Price sensitive
information. The following extracts spited from S-34(2)(b),
1.Specificality
It mentioned the term “Specific” but CJA uses the term “Precise” also . Ryan V Triguboff.
“Specific information connotes not merely that it is precisely definable but that its entire content can be precisely
and unequivocally expressed and discerned”
2. Particularity (Should not be general in Nature- Tax on Banks and Petroleum industry)
3.Publicity ( Specify the accurate elements E.g. is CJA)
4.Price-sensivity (No guidance- likely materially affect the price of securities)
5.Confidentiality ( not direct application but come from the term “Connected” in SEC V Texas
Gulf Sulphur Co)

6. Recommendations
I. For amending the SEC Act.
01. The word “Connected” should be removed from S-32 and make the act in comprehensive manner.
02.Impose the Civil liability to the line with burden of proof. (R V Rivlein)
03.Price sensitive information should redefine with clarity and unproblematic.
04. Controlling share holders also consider as insiders.
05.Privatate companies also considered.
06.Restitution methods should be included
07.SEC officers also make chargeable for insider dealing beyond the scope of take-over code.
II. For Practice and litigation process
A clear look on corporate ethics our law, can catch virtually any one engaged in insider dealing
include the tipper or tipees. But the issue is weakness is clearly in surveillance and enforcement. The
trained personal and huge some of money is needed to investigate and litigate in the spectrum of
insider dealing. ( Until now no cases for insider dealing in SL, Kenya is a very good example for judicial
activism in this spectrum). There is no use in Broker funds for compensation.
Conclusion
Any country in the world cannot be totally eradicated. Laws are skeptics in certain extent. But we put
the fence to control in a limit and make the commission of such offences expensive, and pave the way
to create that the market is relatively well regulated.
“IF INSIDER DEALING WAS PROHIBITED, THERE WOULD NOT BE ANY TRADING IN THE MARKET”