What is the meaning of internal information of securities? When is it considered that a person has access to this internal information? What is the punishment for trading while in possession of or exploiting internal information about a security?

The answer to this question is given by the team of capital markets lawyers in RHR Law Firm in accordance with the executive regulations of the law No. 7 for the year of 2010 concerning the establishment of the Capital Markets Authority and regulation of Securities Activity.

What is the meaning of internal information of securities?

or securities trading, and the internal information must be related to a security or a company listed on the stock exchange, not be disclosed or made available to the public in any way, and have a material impact on the price or trading of a security if disclosed or made public.

Information is not considered internal if it is disclosed on the stock exchange, or if it is in records that anyone can view, or if it is a technical analysis or research study on a security that was prepared using publicly available information.

Information is not considered as internal if it is disclosed on the stock exchange, or if it is in records that anyone can view, or if it is a technical analysis or research study on a security that was prepared using publicly available information.

The person with access to internal information of securities?

Every person who, by virtue of his position, has access to material information or data about a security or a publicly traded company that was not previously available to the public is considered an insider (has access to the internal information), and this includes the following categories:

1. Members of the listed company’s board of directors and administrative body, as well as its parent company and subsidiaries, who have internal information about the listed company, either directly or indirectly.
2. Employees of other entities, such as the auditor, advisory bodies, credit rating agencies, and other entities, who have access to internal information about the listed company or listed securities.

Shareholders who were informed about internal company information by their representatives on the board of directors of the listed company.

4. Employees of the authorized person who have knowledge of a customer sale or purchase of a listed security.
5. Persons who have illegal access to internal information about a publicly traded company or who trade in a publicly traded security.
6. Any other person who fits the definition of an “insider” i.e., has access to the internal information.

Cases of trading while in possession of or exploiting internal information

The occurrence of the trading crime while possessing or exploiting internal information about the security occurs when the insider “a person with access to the internal information” sells or purchases the listed security directly or indirectly while in possession of the internal information in the following cases:

1. If the insider “a person with access to the internal information” sells or purchases a security while possessing internal information about it.
2. If the insider “a person with access to the internal information” sells or buys on behalf of someone else.
3. If the insider “a person with access to the internal information” delegated the sale or purchase to another person on his or her behalf.
4. If the insider “a person with access to the internal information” uses the accounts of others to make sales or purchases.
5. If the insider “a person with access to the internal information” is employed by an authorized person and has internal information about a customer’s desire to trade in a security, he enters orders on the same paper as the customer’s orders in order to obtain a priority that would benefit him or others.
6. If the insider “a person with access to the internal information” has internal information about a merger project or an offer to acquire a security, he sells or buys the security while in possession of the information, unless the sale or purchase is permitted under the provisions of Book Nine (Merger and Acquisition) of the Executive Regulations of the Law Establishing a Markets Authority Money and Securities Activity Regulation No. 7 of 2010.
7. If the insider “a person with access to the internal information” discloses internal information to another person or gives advice based on internal information.
8. If any person buys or sells a security based on internal information obtained from an insider “a person with access to the internal information” with knowledge of the nature of that information for the purpose of benefiting himself or others.

Penalty for trading while in possession of or exploiting internal information about a security

Any insider “a person with access to the internal information” who sells or buys a security while in possession shall be punished by imprisonment for a period not exceeding five years and a fine not less than the value of the realized benefit or the losses that were avoided, or the amount of ten thousand dinars – whichever is higher – and not exceeding three times the value of the realized benefit or the losses that were avoided, or the amount of one hundred thousand dinars – whichever is higher – or with one of these two penalties.

Any person who buys or sells a security based on internal information obtained from an insider “a person with access to the internal information” with knowledge of the nature of that information for the purpose of benefiting himself or others will face the same penalties.

Legitimate situations that do not exist when internal information is possessed or exploited

In the following situations, the insider “a person with access to the internal information” is not considered to have committed the crime of trading while possessing or exploiting internal information about the security:

1. If the insider “a person with access to the internal information” buys or sells in accordance with the instructions of another person as a result of his job or work without disclosing his internal information.
2. If the insider “a person with access to the internal information” sells or buys in response to a court decision.

An informed legal person is not considered to have committed this crime if the person who executed the sale and purchase transactions on the security did not know about the internal information at the time of doing so, provided that the legal person complies with the provisions of Books Five (Securities Activities and Registered Persons) and Six (Securities Activities and Registered Persons) (Internal Policies and Procedures). For an authorized person), and Book Eight (Work Ethics) of the Executive Regulations of the Capital Markets Authority and Securities Activity Regulation Act No. 7 of 2010.

If you are looking for a Kuwaiti law firm that specializes in providing legal services to the securities, capital and stock market activities, you can count on us at Taqneen, Law Firm and Legal Consultations.

To book an appointment or request legal advice about the duties of securities companies in the optimal implementation of clients’ orders, we are pleased to receive your inquiries at (info@Taqneen.com).