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, QUESTION
Mahlangu is the chief executive officer of Monifa Ltd, a listed company which
develops educational software programmes for children. The company is on
the verge of introducing a mathematics software educational package which
will revolutionise learning in primary schools. The company has not yet made
any public announcement about this new invention. Only Mahlangu and the
managing director, Bongani, know about this invention. Bongani’s personal
assistant, Lerato, saw the documents containing this confidential information
about the invention when she was asked to file documents. Lerato told Fulu
about the contents of the documents. Fulu immediately purchased shares in
Monifa Ltd for herself. Lerato also told Thakhani to buy shares in Monifa Ltd
without telling her why she should do so. Thakhani did not purchase any
shares in Monifa Ltd. Edward, Fulu’s husband, bought 1 000 shares in Monifa
Ltd without discussing any matters relating to the shares with Fulu. When the
new software programme was announced publicly, the price of the company’s
shares immediately increased by 10%. Explain whether Lerato, Fulu, Edward
and Thakhani can be held liable for any offences under the Financial Markets
Act 19 of 2012 regulating insider trading. You must include a discussion of the
definitions of an “insider” and “insider trading” in your answer, but do not
discuss the defences to the insider trading offences. [15]
ANSWER
The Financial Markets Act (FMA) has repealed the Securities Services Act 36 of
2004 (“SSA”). The FMA came into force on 3 June 2013.1 Market abuse is dealt
with in Chapter X of the FMA. The offence of insider trading is dealt with in
section 78 of the FMA, while prohibited trading practices are dealt with in
section 80 of the FMA, and the prohibition of false, misleading or deceptive
statements, promises and forecasts is dealt with in section 81 of the FMA.
One needs to apply the definitions of “insider” and “inside information”
because they are very important. If you look at the definitions of the various
insider trading offences, you will see that if the information is not inside
1
Financial Markets Act 19 of 2012
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