Insider trading: What amounts to material non-public information (MNPI)?
The question of whether information amounts to materially non-public information (MNPI) is always a challenging one. In Singapore, whether information is MNPI is measured against the standards and expectations of a person who commonly invests in the particular type of securities concerned (a Common Investor).
In October 2018, the Singapore Securities and Futures Act (SFA) was amended to clarify the meaning of the term Common Investor. The amendments also strengthen the Monetary Authority of Singapore (MAS)'s ability to pursue insider trading cases.
Who is a Common Investor? Background to the SFA amendments
Under the SFA, information amounts to MNPI if:
(i) it is not generally available. Broadly, information is generally available if it has been made known in a manner that would, or would be likely to, bring it to the attention of Common Investors of the particular type of securities concerned; and
(ii) the information would, or would be likely to, influence Common Investors of the particular type of securities concerned, in deciding whether or not to deal in those securities.
The term Common Investor was not defined in the SFA prior to the amendments in October 2018.
The MAS was prompted to propose a definition of the term Common Investor in the SFA, following the Singapore Court of Appeal decision in Lew Chee Fai Kevin v MAS  2 SLR 913. The Court of Appeal had held that a Common Investor would have the attributes of a "reasonable investor", who is able to do technical and fundamental analysis on information that is freely available and the knowledge to read and analyse financial statements, amongst others.
In a Consultation Paper released in August 2015, the MAS stated that there is a need for such a statutory definition in order to ensure that the standard market knowledge vested in the hypothetical Common Investor reflects the majority of market participants (including retail investors) and the realities of the market.
New statutory definition of Common Investor and Guidelines issued by the MAS
Following several further rounds of public consultation, a new statutory definition of Common Investors was incorporated in the SFA in October 2018. At the same time, the MAS released its Guidelines on the Interpretation of "Persons Who Commonly Invest" in Division 3 of Part XII of the SFA (Guideline No. SFA 12-G01) (the MAS Guidelines).
The term Common Investor is now defined in the SFA to mean a section of the public that is accustomed, or would be likely, to deal in the particular type or class of securities.
The MAS Guidelines further state that:
- The Court of Appeal's interpretation of the term Common Investor "does not comport with market realities".
- The Common Investor should be a person who invests in the relevant type of product "on a regular basis", i.e. focused on the frequency of trading. (In contrast, the Court of Appeal's interpretation of the term (i.e. a "reasonable investor") is dependent on the knowledge and experience of the person.)
- Common Investors may comprise different classes of investors depending on the product in question. MAS' view is that the typical classes would include retail investors and more sophisticated investors. The determination of the types of investors who are Common Investors is very much product-specific. (For example, the Common Investors of listed equities would probably comprise all classes of investors. In contrast, the Common Investors of derivatives contracts may be different, as retail investors are not likely to deal in such a product.)
- Common Investors would be rational and economically motivated investors with at least some experience and knowledge of investing in the relevant financial products.
The Guidelines also provide the following guidance as to whether information is MNPI:
- Information is only considered "generally available" if it is made available to all classes of Common Investors.
- Information will be material if any one or more classes of Common Investors might be influenced by the information in deciding whether or not to deal in the products. (The MAS considered that it would be unworkable if the same piece of information has to influence all classes of Common Investors for that product to trade, in order to amount to MNPI. This is because information may influence one class of investors to trade (for example, retail investors), but may not influence another class of investors to trade (for example, sophisticated investors).)
Impact of the amendments on corporations and financial institutions
It is now clearer as to when information, and what type of information, amounts to MNPI. There is now clarity that information would amount to MNPI as long as it would influence any Common Investor (regardless of the class of investor) to deal in the product.
It is also now clear that if the MNPI is not made available to all Common Investors across all the classes of investors, that information remains MNPI.
For institutions which may potentially receive MNPI in the course of their business, this means that the following questions must now be asked:
- Who are the Common Investors in the financial product concerned?
- If retail investors would be Common Investors, whether the information is MNPI must be assessed in relation to retail investors. For example:
o Is the information "generally available" to retail investors? Information that is "generally available" to sophisticated trading parties may not be available to retail investors.
o Is a retail investor likely to deal in the product, in light of the information? It is not sufficient simply to ask whether other counterparties in the industry are likely to deal in the product in light of the information.
The threshold in terms of what constitutes MNPI and insider trading is now lower, in light of these amendments to the SFA. That said, the clarity provided by way of the new definition of the term Common Investor and the MAS Guidelines is welcome.
* Clifford Chance Asia is a Formal Law Alliance in Singapore between Clifford Chance Pte Ltd and Cavenagh Law LLP. Janice is a Counsel with Cavenagh Law LLP. Where advice is required on aspects of Singapore law discussed in this article, we will refer the matter to and work with Cavenagh Law LLP.