CMFAS RES 1A Market Conduct question: established for liability under SFA s.219

CMFAS RES 1AMarket Conduct

Mr Iskandar is a remisier with no connection to Pico Ltd. At a wedding a stranger tells him that Pico will announce a large contract loss the following week. He believes it, sells his Pico shares, and tells his brother-in-law, who also sells. The announcement is made and the price falls 22 per cent. What must be established for liability under SFA s.219?

A That the information came from a person connected to Pico, such as a director or employee
B That Mr Iskandar made a profit or avoided a loss on the trade, and that his brother-in-law did too
C Nothing beyond possession of the information, because knowledge is presumed once possession is shown
D That he knew the information was not generally available and was likely to have a material price effect

Show the answer and explanation

Answer: D. That he knew the information was not generally available and was likely to have a material price effect

SFA s.219 applies to persons who are not connected to the corporation. Actual knowledge of both limbs must be proved, and the presumption available against a connected person under s.218 does not apply. The source of the information is irrelevant, and under s.220 there is no need to prove an intention to use the information. Passing the information to a person likely to trade is prohibited as well as trading.

Common mistake

The presumption of knowledge belongs to s.218 connected persons; for a tippee under s.219 it must be proved.

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Related CMFAS RES 1A questions

A director in possession of unannounced good results tells his brother to buy the company's shares. Even if the director never trades himself, he may be liable because the prohibition also covers Mr Tan, assistant to the CEO of an SGX-listed company, used trading accounts belonging to Mr Yap to buy the company's shares ahead of a takeover announcement and later to sell ahead of the withdrawal of the offer. Which of the following consequences followed?Company A's CEO tells his golf partner (an outsider) about an unannounced acquisition. The partner tells his own broker, who understands it is confidential and price-sensitive and buys. Who can potentially be liable?

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Original study material mapped to the public CMFAS RES 1A syllabus. Unofficial, not endorsed by MAS or IBF. Verify figures and rules against current guidance before relying on them.