Australia: The new tools for insider traders

Last Updated: 27 October 2014

A swathe of insider trader and market manipulation cases has revealed how white collar criminals are using complex financial products including contracts for difference (CFD) to avoid detection.

Lawyers said the highly leverage nature of CFDs made them particularly tempting for younger traders because they require far less capital and can reap larger profits than if the same amount was invested in underlying shares. Recent cases have reflected an increased popularity of CFDs, including that of Nigel Derek Heath, 51, of Wahroonga in Sydney who pleaded guilty to two market manipulation charges at the Downing Centre Local Court on Tuesday.

The charges against the experienced day trader – who had a $1.4 million CFD portfolio and a masters in law – concerned trades in four resource ­companies between February 16, 2012 and October 11, 2013.

Geoff Hoffman, partner in charge at Clayton Utz in Sydney said CFDs gave traders economic exposure to movements in a share price without actually owning shares in a particular stock.

They could be exploited by anyone who was confident about the direction a stock was going to move, he said.

Insider traders were also attracted to contracts for difference because they believed the trades would be harder for regulators to detect.

But Mr Hoffman said many came undone because the investment bank that sold the CFD would ordinarily hedge their position.


"They think they won't get caught. And were it not for the hedging activity, it might be unlikely that it would be detected," Mr Hoffman said.

"It's the order the bank puts into the market to execute the hedge that throws a red flag up with the regulators about a big buy that's occurred im­mediately before a big announcement."

Allens partner Matthew McLennan said CFDs were attractive to young ­traders who did not have access to large amounts of capital.

"If you own the shares it puts a ­natural limit on how much you can gain," Mr McLennan said. "Whereas with a CFD, or some other form of lev­erage, you increase your upside substantially and risk a lot less capital."

Directors had obligations to disclose their CFDs just as any share holding. But directors could also take advantage of CFDs because they did not involve registering a transfer, and could therefore have a better chance of the trades escaping detection by the company, Mr McLennan said.

Norton Rose Fulbright partner David Porter, said the initial margin that traders took was often between 3 per cent and 30 per cent of an actual share price.

Mr Porter worked on a case involving Sonray Capital Markets, which provided advice on CFDs until it collapsed in 2010 owing more than $46 million.


The company's former sole director Russell Andrew Johnson, was sentenced to 6½ years jail for false accounting, theft and deception and conspiracy to steal in April while its former chief executive Scott Kenneth Murray, was sentenced to a non-parole period of two years and six months for 10 similar charges in October 2011.

Mr Porter said what made CFDs attractive was that they were readily available in any number of over-the-counter products including shares, ­currencies and futures.

"They are harder to detect because they don't involve share registers," he said. "You can just enter into some over-the-counter contract."

Ashurst partner Jonathan Gordon said another attraction of CFDs was that they could also be used to establish a short position.

For example if a person has inside information which they think will ultimately lead to a fall in the share price, the person may choose to take a short CFD position to profit from a later share price fall, Mr Gordon said.

He said while many traders might not know that the insider dealing laws applied to CFDs and other derivatives, and not just to shares, the recent success of ASIC's enforcement actions would have now made it clear.

"Traders should be aware that ASIC has very sophisticated surveillance ­systems in place to detect unusual ­trading activity, including through CFDs," Mr Gordon said.


Head of compliance at provider IG Natalie Beirne said it also had legal ­obligations to monitor trading for ­market abuse and insider trading and any information about suspicious activity was passed directly to ASIC.

Ms Beirne said it needed efficient CFD markets for the products to be as transparent and viable as possible.

Though dissimilar to a share registry, IG held information about who held CFDs that could be readily provided to authorities, she said.

"Our dealing desk monitors transactions processed, they are familiar with what is going on in the market, announcements and trading halts, and will report anything that is suspicious," Ms Beirne said.

It also had an automated monitoring system that picked up unusual trading patterns and large trades.

Australian Institute of Company Directors Steve Burrell, general manager of communications said companies could impose additional prohibitions or restrictions on CFD trading and require directors to disclose trades under their internal trading policies.

"A trading policy must also be lodged with the ASX for disclosure to the market so any restrictions on trading are public knowledge," Mr Burrell said.


An ASIC spokesman Andre Khoury said it pursued insider trading matters involving all financial products and it was just as possible to get caught in the CFD market as in the physical market.

"ASIC is devoting its resources to confronting the issue and has the systems to effectively detect, analyse and investigate potential cases of insider trading," Mr Khoury said.

The roll-out of ASIC's market surveillance system in 2010 made it easier and quicker to identify suspicious trading by connecting patterns and relationships.

It could make inquiries into the listed derivatives space that it previously could not pursue because it did not have the information, he said.

Trading by directors was subject to more scrutiny because of the expectation they possess market sensitive information unavailable to the rest of the market.

"The message is simple – we are watching trades on Australia's financial markets and can detect misconduct faster and more easily than ever before."

ASIC had brought more than 33 cases since 2009 that resulted in more than 20 convictions.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions