Insider trading is an absolute red line in capital markets. Crossing it can lead not only to substantial fines and criminal liability, but also to the collapse of personal and corporate reputation. Yet many corporate professionals who find themselves behind bars are not acting with malicious intent—they simply are unfamiliar with the law. From a practical perspective, this article examines three of the most common pitfalls.

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Lesson 1: The Secret of Starting Line — When Does Information Become “Definite”?

The prohibition on trading begins when “material information becomes definite.” But where exactly is that line drawn? Many mistakenly believe that information only becomes definite once a contract is executed—this is a critical misconception.

In practice, “definite” does not mean “certain to occur.” Rather, it refers to situations where the likelihood of the event is sufficiently high and would influence the judgment of a reasonable investor.

A classic scenario: A director believes that a merger is not “definite” until a Memorandum of Understanding (MOU) is executed. Since only a Non-Disclosure Agreement (NDA) has been executed, he assumes the information is not yet definite and considers taking a risk by entering the market early.

The answer: Don’t do this. The concept of “definite,” much like the court’s notion of something “inevitably occurring,” is inherently subjective. From the signing of an NDA, to due diligence, to board authorization—any of these milestones may “later be deemed” by a court as the point at which the information became definite. Rather than testing ambiguous legal boundaries, the safest rule is simple: Once you are aware of the information, do not trade.

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Lesson 2: The Finish Line Trap — The “18-Hour Cooling-Off Period” After public Disclosure

The law sets the end of the trading prohibition at 18 hours after public disclosure of the information. This period, known as the “cooling-off period,” allows the market to fully absorb the information. However, many violations arise from miscalculating this timeframe.

A real case: A company releases highly positive news at 5:00 PM on Thursday. A director purchases shares immediately at market open (9:00 AM) on Friday, believing the information is already public and safe to act upon. Nevertheless, this still constitutes insider trading. Why? Because the 18-hour period starting from 5:00 PM Thursday does not end until 11:00 PM Friday.

To avoid falling into such situation, two practical pieces of advice:

1. Companies should release material information early: Ideally before 2:30 PM on a trading day, so the 18-hour period concludes before the next market opens.

2. Insiders should adopt a stricter “no trading for one full day” rule: Refrain from any trading for at least 24 hours after material information disclosure is the best way to protect yourself.

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Lesson 3: Who is an Insider? The Answer is Broader than You Think

When people discussing insiders, they usually think of directors, supervisors, managers, and major shareholders. However, the legal definition is far broader. It also includes “anyone who obtains information through their occupation or control relationship,” and “anyone who learns such information from those persons.”

A real case: A junior accounting staff member helped prepare quarterly financial statements showing a loss. Before the information was made public, he sold shares and was later prosecuted. The reason is simple—he obtained material non-public information through his job.

From lawyers, accountants, and securities brokers, to internal R&D, finance, legal, and even IT personnel—anyone whose role provides access to undisclosed material information becomes an “insider” at that moment.

Therefore, insider trading compliance training must not be limited to senior management. It should extend to all employees. Only by fostering the risk awareness where “everyone is a potential insider” can companies build an effective compliance firewall.

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To conclude, preventing insider trading is a multidisciplinary challenge involving law, management, and human behavior. Only by combining upstream controls, disciplined conduct at critical points, and organization-wide education can companies establish a robust compliance culture and operate steadily in capital markets.

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This article was published in the Expert’s Commentary Column of the Commercial Times.

https://www.ctee.com.tw/news/20260224700111-431303

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