Insider Trading Quiz

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Questions and Answers

What is insider trading primarily based on?

Material, non-public information (correct)
Material, public information
Public market speculation
General news articles

Which of the following best describes front running?

Investing in a diversified portfolio to mitigate risks
Trading based on inside information about pending orders (correct)
Trading securities without relevant information
Buying shares in anticipation of a market crash

Which regulatory framework is mentioned as a guide to prevent insider trading?

European Union Market Regulation
UK Market Abuse Regulation (MAR) (correct)
U.S. Securities Exchange Act
Australian Securities and Investments Commission (ASIC) guidelines

Which of the following actions would NOT constitute insider trading?

A trader speculating on market trends without specific information (A) Signup and view all the answers

What consequence might individuals face for engaging in insider trading?

Criminal charges (C) Signup and view all the answers

In the example provided, what information leads Yvonne to enter a CFD position?

Confidential takeover information shared by Xenox (D) Signup and view all the answers

What is a common misconception about insider trading?

It is only illegal for company executives (A) Signup and view all the answers

What behavior must individuals at Axi avoid to comply with insider trading regulations?

Using confidential bid details for personal gain (D) Signup and view all the answers

What constitutes insider trading?

Trading based on non-public information, regardless of profit (A) Signup and view all the answers

Which of the following is an example of a commodity derivative?

An option contract on gold (B) Signup and view all the answers

Why is Yvonne's personal trading in oil futures considered insider trading?

She knew about a client’s large order prior to trading. (B) Signup and view all the answers

Which scenario does NOT represent insider trading?

Making a trade based on information from a news article (D) Signup and view all the answers

What is the maximum prison sentence for insider trading in the UK?

Ten years (C) Signup and view all the answers

How do regulators identify insider trading patterns?

Using trading data combined with other sources (C) Signup and view all the answers

What action constitutes insider trading in the context of mergers?

Making trades influenced by confidential merger information (A) Signup and view all the answers

In what instance can knowledge from insider information be legally used?

For executing transactions related to a merger or takeover (D) Signup and view all the answers

What is the maximum prison sentence for insider trading in Australia?

15 years (D) Signup and view all the answers

What is the maximum fine for insider trading in Australia?

$1.565 million (D) Signup and view all the answers

Who leaked confidential ABS data for insider trading?

Chris Hill (C) Signup and view all the answers

Which financial institution did Lukas Kamay work for on the foreign exchange desk?

National Australia Bank (D) Signup and view all the answers

What was the profit Lukas Kamay made from his first trade using ABS data?

$13,508 (C) Signup and view all the answers

What was the name of the joint investigation initiated by ASIC and the Australian Federal Police?

Operation Leith (A) Signup and view all the answers

What was the total profit Lukas Kamay earned in under three minutes in 2013?

$61,000 (C) Signup and view all the answers

What position did Chris Hill hold when he accessed key economic indicators?

Statistician (A) Signup and view all the answers

Study Notes

Insider Trading

Insider trading involves trading an instrument based on material, non-public information.
This is unethical and undermines market fairness and investor trust.
Insider trading is illegal in all jurisdictions Axi operates.
Engaging in insider trading can result in criminal charges.
Insider trading rules are similar across regions.
UK Market Abuse Regulation (MAR) is used as a guide for insider trading prevention.
MAR specifies behaviours that constitute insider dealing.

Examples of Insider Trading

Front running: Trading securities based on inside information about a pending order. Can occur in takeover situations, similar to Axi's bid for SelfWealth.
Using confidential bid details: Exploiting personal gain by using confidential bid details for personal gain and making trades that exploit expected share price movements.
Share price movements: Taking advantage of expected share price movements. These details are considered inside information in takeover situations.
Takeover situations: Insider information includes potential bids or due diligence results in takeover situations.
Director sharing confidential takeover information: A director sharing confidential takeover information with a friend, who then trades based on that knowledge.
Commodity derivatives: Insider trading also applies to commodity derivatives, such as CFDs, futures, or option contracts on a commodity. Using non-public information about significant changes in commodity stock levels for personal gain is insider trading.
Metals or commodities like oil: Insider trading applies to trades with inside knowledge, including metals or commodities like oil.
Using inside knowledge for a merger: Using inside knowledge solely for proceeding with a transaction during a merger or takeover is not insider trading.

Penalties for Insider Trading

Maximum sentence (UK): Ten years in prison.
Maximum sentence (Australia): Up to 15 years in prison, a fine of up to $1.565 million, or three times the profits made or losses avoided (whichever is higher).

Case Study: Chris Hill and Lukas Kamay

Chris, working at the Australian Bureau of Statistics (ABS), gained access to key economic indicators.
He met Lukas, who worked at the National Australia Bank, and used leaked ABS data to trade on the Australian dollar market.
Lukas used leaked data to profit significantly.
This led to a lengthy insider trading investigation, resulting in the longest insider trading sentence in Australian history for Lukas (seven years and three months).