Inside traders will face up to five years in jail or civil fines of up to $1 million under Government plans to strengthen securities trading laws.
Cabinet papers issued by Commerce Minister Lianne Dalziel yesterday also recommended broadening the definition of insider trading.
The changes would for the firsttime make individuals criminally liable for insider trading if they trade on inside information, however it was obtained, or disclose it so that another person can trade on it.
Under current law insider trading is a civil offence. Court action can be taken only by the Securities Commission, the company whose shares are traded, or by a shareholder. The penalty is the amount of the gain made or loss avoided, plus a fine.
The key features of the papers - part of a review aimed at promoting confidence and participation in the country's securities markets - are:
* Criminal penalties for insider trading and market manipulation offences and for investment advisers and brokers who recommend illegal offers of securities.
* Civil fines for deception and breaches of the Securities Act 1978.
* Empowering the Securities Commission to be a fully effective enforcement agency.
* Empowering the High Court to make compensation orders for those who have suffered a loss.
The Government also plans to introduce:
* More prohibitions on market manipulation, including a general ban on misleading or deceptive conduct relating to securities and more specific bans on misleading or deceptive statements.
* Amendments to the law on investment advisers. This is to improve the disclosure regime, to make illegal offers of securities a criminal offence and to strengthen enforcement of investment adviser law.
* Tougher penalties and remedies for breaching securities trading law.
A draft Securities Trading Law Reform Bill is being prepared. Consultation would be carried out this year before the bill was introduced early next year, Dalziel said.
Yesterday's proposals are the third stage of the Government's securities law overhaul - the first involved implementing the Takeovers Code in July 2001 and the Securities Markets and Institutions Bill last December.
No one in New Zealand has been tried or convicted of insider trading, but prison sentences have been handed down recently in Australia and the United States.
