Insider trading liability rests on a breach of duty, not merely on trading with better information.
Classical theory. A corporate insider who trades in their company’s securities on material non-public information breaches a duty to the shareholders on the other side of the trade. It extends to temporary insiders — lawyers, bankers, accountants — who receive information for corporate purposes.
Misappropriation theory. A person who trades on confidential information in breach of a duty owed to the source of the information is liable even though they owe no duty to the counterparty. This is how liability reaches an outsider who misuses an employer’s or a client’s information.
Tipping. A tipper is liable where they disclose in breach of duty for a personal benefit; the tippee is liable if they knew or should have known of the breach. Personal benefit includes pecuniary gain, reputational benefit translating into future advantage, and gifts of information to trading relatives or friends.
Remote tippees must know the information came from an insider and was disclosed in breach.
Materiality and non-public status are assessed as of the time of the trade.
Trading plans adopted in good faith when not in possession of material non-public information provide an affirmative defence, subject to cooling-off and disclosure conditions.