Overview of Insider Trading Regulation In Indonesia Capital Market Law

In Indonesia Capital Market, the main problem in dealing with Insider Trading crimes lies in applying the theory used to ensnare Insider Trading actors. Based on Act No. 8 of 1995 of the Capital Market Law (“Indonesia Capital Market Law”), this regulation has implicitly acknowledged that the Fiduciary Duty Theory is part of the process of handling Insider Trading in the Indonesian Capital Market. In Indonesia Capital Market Law, the existence of the Fiduciary Duty Theory can be found in Article 95, which in the article it regulates that insiders from Issuers or Public Companies who have inside information are prohibited from buying or selling Securities from Issuers or the Public Company, as well as other companies who conduct transactions with the Issuer or the Public Company.

Article 95 of Indonesia Capital Market Law

“An insider from the Issuer or Public Company that owns Inside information is prohibited from buying or selling Securities of:

1. Issuer or Public Company; or
2. other companies that conduct transactions with the Issuer or the Public Company concerned.”

Elucidation of Article 95 of Indonesia Capital Market Law

“the parties that can be categorized as Insiders have been determined, namely:

1. Commissioner, director, or employee of the issuer;
2. The main shareholder of the issuer;
3. An individual who, because of the position or profession or because of the business relationship with an issuer or public company, allows that person to obtain information, or a party which within the last 6 (six) months is no longer a party as referred to in letter a, letter b, or letter c above.”

By further analyzing Article 95 and its elucidation, it can be concluded that three elements must be met for someone to be said to be practising Insider Trading, namely:

1. First, the parties prohibited from conducting transactions on securities are Insiders from issuers or public companies, such as commissioners, directors or employees, major shareholders, people with their positions, or parties who have had a relationship with the company within the last six months;
2. Second, regarding inside information, Article 1 number (7) of the Capital Market Law stipulates that: Material Information or Facts are important information or facts relevant to events, occurrences, or facts that may affect the price of Securities on the Stock Exchange and the decisions of investors, potential investors, or other parties with interest in such information or facts;
3. Third, buying or selling securities from issuers or public companies and securities from other companies that conduct transactions with the issuer or public company concerned is prohibited;

The difficulty in ensnaring Insider Trading actors based on the Indonesia Capital Article Law in Indonesia is tremendously different from the success of the United States in prosecuting Insider Trading actors based on their Capital Market Law. This difference lies in the use of the theory applied by Chief Justice Warren Burger in a dissenting opinion in the case of Vincent Chiarella v. the United States in 1980.

In that case, Vincent Chiarella made securities transactions based on material information he obtained as an employee at a printing company in the financial sector. For his actions, the government stated that:

“secret conversion of confidential information operated as a fraud on the corporation that entrusted him with that information” and that his “purchase of securities based on material nonpublic information obtained by misappropriation constituted fraud on the sellers of those securities.”

In line with the opinion above, Warren Burger, in a dissenting opinion, stated that:

“In particular, the rule should give way when an informational advantage is obtained, not by superior experience, foresight, or industry, but unlawful means.”

In the case of Vincent Chiarella, Warren Burger through a dissenting opinion, introduced Misappropriation Theory as a theory used to hold accountability for violations of Article 10b-5 of the Securities and Exchange Act of 1934. Warren Burger agrees that a violation of Article 10b-5, based on the Misappropriation Theory, this theory can hold liable anyone who unlawfully obtains or alters nonpublic information for his benefit in trading securities. By this theory, Warren Burger agrees that Vincent Chiarella is declared responsible for violating Article 10b-5, with the result that the idea of Misappropriation Theory in the case of Vincent Chiarella v. the United States has eliminated the need for a Fiduciary Duty relationship between Insider Trading actors and Issuers or Public Companies to be declared as practising Insider Trading.

Based on this understanding, to make it easier for readers to understand the difference between these two theories, the author writes a comparison of the elements of Insider Trading based on the application of Fiduciary Duty Theory and Misappropriation Theory in analyzing Insider Trading actors, which can be seen in the following table: