“Insider trading” often pops up in headlines about market scandals. But away from the headlines, it’s a practical compliance issue that many Australian businesses need to understand - especially if you have employees, advisers or investors who may access confidential, market‑sensitive information.
In plain terms, insider trading law aims to keep the market fair. If someone trades, or helps others trade, using information the public doesn’t have, that’s a problem. The consequences can be serious, and the risks aren’t limited to big listed companies.
In this guide, we’ll explain what insider trading means in Australia, who can be caught by the rules, how the law works, and the steps you can take to manage risk in your business. Let’s break it down.
What Is Insider Trading In Australia?
Insider trading is when a person trades in financial products while holding material, non‑public information that would reasonably be expected to affect the price of those products if it became public.
- Material information is information a reasonable investor would consider important - for example, unpublished financial results, a confidential merger proposal, a major contract win or loss, or a significant legal development.
- Non‑public information is information that isn’t generally available to the market. If it’s confidential or only known by a small group (inside or outside the company), it’s non‑public.
- Trading includes buying, selling or procuring another person to trade in financial products such as shares, options, derivatives or interests in managed investment schemes.
Insider trading isn’t only about buying or selling yourself. Passing inside information to someone else (a “tip”) knowing, or reasonably expecting, they might trade on it is also unlawful.
Importantly, Australian law covers a broad range of financial products - not just securities quoted on the ASX - so the net is wider than many people think.
Who Can Be An Insider (And When)?
You don’t need to be a director or a senior executive to be caught by insider trading rules. Anyone who has inside information can be an insider, even temporarily.
- Employees and contractors who access confidential reports, draft announcements or board papers.
- Advisers and service providers such as lawyers, accountants, investor relations consultants, designers and IT vendors working on sensitive projects.
- Founders and investors who share or receive market‑sensitive updates, especially in companies preparing for fundraising or liquidity events.
- Friends and family who are told inside information informally (e.g. a casual conversation that leads to trading).
If your business offers equity to staff or founders (for example through an Employee Share Option Plan), or anticipates a capital raise, the likelihood of team members holding inside information increases. That’s when a clear policy and simple processes make a big difference.
How The Law Works: Section 1043A Explained
The main prohibition sits in Section 1043A of the Corporations Act 2001 (Cth). In simple terms, if you possess inside information, you must not:
- Apply for, acquire or dispose of financial products (or procure another person to do so), where the information relates to those products; or
- Communicate the information to another person if you know - or ought reasonably to know - they would, or would be likely to, trade on it.
To be “inside information”, it must be:
- Not generally available: it isn’t public, or isn’t readily observable or deducible from public sources; and
- Likely to have a material effect: a reasonable person would expect it to have a significant impact on the price or value of relevant financial products if it became public.
You can be an insider even if you learned the information indirectly (for example, through a tip from another adviser). It also doesn’t matter whether you actually made a profit - the use or communication of inside information is what the law targets.
Is this only for listed companies?
No. The prohibition applies to a broad range of financial products, whether or not they are quoted on a financial market. That said, listed entities additionally face continuous disclosure obligations - a separate regime - but the insider trading rules stand on their own.
Practical Steps To Manage Insider Trading Risk
You don’t need an army of compliance officers to get this right. A handful of practical controls - explained to your team in plain English - will go a long way.
1) Adopt Clear, Written Policies
- Create an insider trading policy that explains what inside information is, who it applies to, what “dealing” includes, and what to do if someone thinks they have inside information.
- Bundle the policy within a broader Workplace Policy framework so staff know where to find it and how it interacts with confidentiality, conflicts of interest and media/social media rules.
- Make the policy part of onboarding for anyone who might access sensitive information (including contractors and consultants).
- Limit access to market‑sensitive documents on a strict need‑to‑know basis, with clear folder permissions and distribution lists.
- Label confidential board papers and draft announcements so recipients understand sensitivity at a glance.
- Where your business has distinct teams (e.g. advisory and sales), consider “Chinese walls” to restrict information flow on particular projects.
3) Protect Confidentiality Contractually
- Use an Non‑Disclosure Agreement (NDA) when sharing sensitive information with third parties such as consultants, bidders or potential investors.
- Ensure your Employment Contract includes robust confidentiality and compliance clauses, and clear obligations to follow your trading policy.
- For founder and investor arrangements, a Shareholders Agreement can set out blackout periods, pre‑clearance requirements and restrictions on on‑market and off‑market dealings.
4) Make Pre‑Clearance And Dealing Windows The Default
- Nominate a policy owner (often the Company Secretary or CFO) to approve trades in your company’s securities.
- Introduce dealing windows (e.g. shortly after financial results are released) and blackout periods (e.g. quarter‑end to results announcement).
- Require pre‑clearance for trades by directors, executives and anyone regularly exposed to inside information - including their close associates.
5) Train And Remind Regularly
- Short, practical sessions are enough: explain the basics, give real‑world examples relevant to your business, and cover how to escalate a question.
- Refresh training for key events like capital raises, acquisitions or grants under an Employee Share Option Plan.
- Send simple reminder emails before blackout periods and after policy updates. Keep the language plain.
6) Create A Safe Reporting Channel
- Encourage early questions and self‑reporting if someone is unsure about a trade or a potential breach.
- Put in place a confidential channel - supported by a Whistleblower Policy - so concerns can be raised safely and investigated promptly.
7) Have A Breach Response Plan
- Act quickly if you suspect a breach: secure records, pause trading if appropriate, and seek legal advice on next steps.
- Consider whether to inform your board and, if needed, engage with the Australian Securities and Investments Commission (ASIC).
- Document your investigation and outcomes, and update your policy or training to address any gaps you identify.
These controls can be tailored to your size and stage - from a startup with a small team to a larger private company preparing for a listing or sale.
Penalties And Enforcement: What Happens If Things Go Wrong?
Insider trading is a serious offence in Australia. Consequences can include both criminal and civil action.
Criminal offences
- Individuals can face imprisonment (up to 15 years for the most serious offences) and substantial fines calculated under penalty unit rules or by reference to benefits obtained.
- Companies can face very significant fines, which are typically the greater of a fixed penalty, a multiple of any benefit, or a percentage of annual turnover capped at a statutory maximum.
Courts also have powers to confiscate benefits gained from unlawful trades.
Civil action and regulatory powers
- ASIC can seek civil penalty orders, banning orders against directors and officers, and compensation for affected parties.
- ASIC can compel documents and information, examine individuals under oath, and refer matters for criminal prosecution.
Even if your business isn’t listed, being drawn into an insider trading investigation can be disruptive, expensive and damaging to trust. Taking proactive steps now is far easier than responding to issues later.
Where Does This Fit In Your Broader Governance?
Insider trading controls are one part of a wider governance framework that protects your business and your people.
- Onboarding and policies - Embed your insider trading policy within your broader Workplace Policy suite and onboarding process.
- Contracts - Ensure confidentiality and compliance obligations are covered in your Employment Contract and in any NDAs with external advisers.
- Equity plans and founder documents - Align trading rules, blackout periods and information handling with ESOP documentation and your Shareholders Agreement.
- Culture - Encourage questions and make it clear that it’s always okay to “pause and check” before trading or sharing sensitive information.
If you’re formalising your company structure or preparing to raise capital, it can also be a good time to review the essentials like company set up documentation and how equity will be offered to staff via an Employee Share Option Plan.
Common Questions We Hear From Businesses
Does insider trading only apply if I make a profit?
No. The offence focuses on using or communicating inside information, not just whether you profited. Tipping someone else so they can trade can also be unlawful.
What if my company is private - do we still need a policy?
Yes, if anyone in your business might access market‑sensitive information (for example, because shareholders or staff hold or may acquire securities). A simple policy, clear training and basic controls are still worthwhile.
Can we let employees trade our shares during a capital raise?
Usually this is when blackout periods and pre‑clearance are most important. Capital raises often involve inside information until the details are publicly announced or otherwise made generally available.
Yes, if there’s a genuine need to know and you use appropriate safeguards, like an NDA, clear confidentiality markings and limited distribution. The presence of an NDA does not “cure” insider trading if someone then trades while holding inside information.
Do we need other compliance documents?
Consider a cohesive set: insider trading policy, NDAs, Employment Contract, Shareholders Agreement, a Whistleblower Policy, and equity plan rules if you offer options. If your business also collects personal information, ensure you have a compliant Privacy Policy.
Key Takeaways
- Insider trading occurs when someone trades or tips others using material, non‑public information that would be expected to move prices if it became public.
- The rules apply broadly - not just to listed companies or directors - and cover a wide range of financial products and “tipping”.
- Penalties are severe, including potential imprisonment for individuals and significant fines for both individuals and companies, plus civil action and banning orders.
- Practical, proportionate controls work best: a clear policy, information barriers, NDAs, pre‑clearance, dealing windows, training and safe reporting channels.
- Align insider trading controls with your wider governance - contracts, equity plans and founder documents - so your team knows the rules and when to ask for help.
- Getting tailored legal guidance early is the easiest way to set sensible rules, prevent mistakes and demonstrate a strong compliance culture.
If you’d like a consultation on insider trading compliance for your business, reach out to us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.
