Proposed New Rules to Regulate Insider Trading

Insider trading occurring in the stock market has been rising more rapidly lately. Since most of these cases have been to some extent controversial due to the ambiguities in the current law, on October 31 the Executive Yuan proposed an amendment to the Securities and Exchange Act for the purposes of making the relevant law clear, in the hopes of aiding the public prosecutors to investigate with a sharper focus, and on the other hand, provide a safe harbor that would carve out certain investment behavior of the corporate insiders.

Under Taiwan’s Securities and Exchange Act, purchase and sale of the stock prior to the public disclosure of material non-public information is not permissible nor is it unless 12 hours have elapsed after the public disclosure. According to the proposed amendment, regular behavior of investment would be excluded from insider trading prosecution. In other words, if the purchase and sale of stock is regularly made, or is based on a predetermined formula, and such behavior has sustained for a period of at least 6 months prior to the sale or purchase, such behavior would not be considered as a violation of the Securities and Exchange Act. Hence the proposed amendment if passed will provide major shareholders, supervisors, directors and other corporate insiders to avail themselves of a defense in this type of cases. Nevertheless, in the proposed amendment, the period in which the purchase or sale of shares is prohibited after the public disclosure will be increased from 12 hours to 18 hours.

The President of the Executive Yuan stated that hopefully the passing of the amendment to the Securities and Exchange Act and certain other financial acts can actually improve the competitiveness of our stock market and facilitate the financial supervision.