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 6˝ 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”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.