Insider trading, materiality, and the reasonable person : who must be influenced for information to have a ‘material effect’?

This article focuses on a key element of the insider trading offence – the requirement that information must be material before it will be considered to be inside information. Inside information is defined as information which is not generally available and, if it were, a reasonable person would expect it to have a material effect on the price or value of certain financial products. Who is the “reasonable person” to be considered when determining whether information is material? The recent decision of the Full Court of the Federal Court in Grant-Taylor v Babcock & Brown Ltd [2016] FCAFC 60 makes it clear that, in respect of continuous disclosure obligations, a group of persons must be influenced in order for information to be considered to have a “material effect”, and the group of persons comprises those who commonly acquire securities in general, rather than those who commonly acquire the type of securities in question. This article analyses the approach to the materiality of information adopted in insider trading cases to date and considers the potential impact of this decision on the concept of materiality under insider trading laws.