When we talk about insider trading, we are referring to people or even institutions that have made a sale and purchase of confidential data.
This practice is illegal, as it aims to disclose private information in exchange for a sum of money. Let’s say right away that it has nothing to do with online trading nor is it a variant.
Draghi’s Law (TUF)
Of course, the European legislation has also been active with regard to insider trading, through the so-called Draghi Law or TUF or the Consolidated Finance Act.
This law was introduced in 1998 by the then Director-General of the Treasury Mario Draghi who managed to form a law that could bring together different parts of many other rules.
In this way, the TUF wants to represent simple legislation by defining mainly what the more general public dictates while leaving the technicalities to the various regulations.
In addition, the law has focused on strengthening the governance systems of companies, thus creating a directive in step with those of other major European states.
TUF regarding Insider Trading
Draghi’s Law has not only provided guidance for investment companies but also it considered the inclusion of asset management companies while reviewing the rules and procedures of the financial markets under much more centralized management, the regulation of financial instruments and the various solicitations for investment.
The TUF has also introduced a series of regulations aimed at condemning certain behaviours that could be harmful to the stability of the markets.
The most striking example of such conduct is precisely the illegal disclosure of private information or insider trading.
What is Insider Trading?
Insider trading can be performed by any individual who finds himself in a more or less privileged position.
In particular, the insider may engage in several violations:
- Buying or selling information in your possession, either for your own benefit or on behalf of a third party;
- Disclose your personal information to external third parties from your professional relationship or function;
- Bringing other users, thanks to the information in their possession, to perform specific operations on financial instruments.
Tipping and Tuyautage Practices
In the environment where insider trading and illegal behavior regarding private information is practiced, the terms tipping and tuyautage often come up.
Tipping is a practice of disclosing such information to third parties without adequate justification and inconsistent with the normal course of work or profession.
Tuyautage, on the other hand, concerns the recommendation to third parties to carry out certain operations without having to disclose to third parties what the actual information is.
Sanctions for Insider Trading
Penalties for insider trading have been in place since 2004 and define that anyone who engages in insider trading, especially if the violation falls within the scope of the penalty, can be punished with imprisonment from one to six years, and with a penalty from twenty thousand to three million euros.
In addition, the designated judge has the right to increase the fine up to three times or up to the amount of the profit achieved multiplied by ten, if he assesses an excessive gravity of the infringement committed, or if it appears insufficient even if applied to the maximum.
These are the measures applicable in the case of the primary insider, i.e. the person who effectively holds and discloses private information.
When, on the other hand, secondary insiders are analyzed, i.e. those who receive such information, the sanction falls within the scope of the administrative offense.
In this way, the violation can be punishable with a monetary sanction of between twenty thousand euros and three million euros.
Public Communication about Insider Trading
In order to be able to effectively define unlawful conduct with regard to communications to the public, the TUF obliges all listed issuers and the subjects that control them to disclose to the public private information directly concerning the issuer data and the subsidiaries.
Moreover, it is also necessary that anyone who performs an administrative, management and control function in a listed issuer, managers who have access to private information and with decision-making power, and anyone who holds shares for an amount equal to at least 10%, disclose to the regulator and the public every transaction carried out.
Communications may also be made through an intermediary, and concern the issuer’s shares or other financial instruments directly linked to them, or internal dealing communications.
Anyone who makes evaluations, such as rating companies, issuers of such instruments or those who recommend investments intended for the mass media, are required to present their information in a correct manner, disclosing any interest or conflict of interest concerning the financial instruments inherent in the information.