INSIDER TRADING:
BETWEEN REGULATION AND PROOF
Authored by:
Juventhy M. Siahaan, S.H., M.H.
Managing Partner, JBD Law Firm
I. Introduction
A healthy capital market is a fair capital market, where every participant has equal access to information for investment decision-making. Behind the securities transactions that take place every day on the exchange floor, there exists a practice that systemically undermines this equality: insider trading. This practice is not merely a technical regulatory violation; it is a betrayal of the most fundamental principles underpinning public trust in the capital market system itself.
Insider trading occurs when an individual with access to material information that is not yet available to the public exploits that information to conduct securities transactions for personal gain. The informational advantage obtained is not through careful analysis or deep research, but through position, relationship, or privileged access, this is what distinguishes it from legitimate competitive advantage. In Indonesia, the gap between written norms and effective enforcement remains profoundly wide. This article examines insider trading from two interrelated perspectives: the regulatory perspective and the evidentiary perspective, as understanding both simultaneously is a prerequisite for truly effective law enforcement.
II. Legal Construction of Insider Trading in Indonesian Capital Market Law
The prohibition of insider trading is codified in Law Number 8 of 1995 concerning the Capital Market (UUPM), specifically Articles 95 through 99. Article 95 of the UUPM defines an insider broadly: commissioners, directors, employees, principal shareholders, and parties who, by virtue of their position, profession, or business relationship, are enabled to obtain insider information, including those who within the last six months were no longer in such positions.
What is prohibited is not merely the act of transacting by an insider, but transactions driven by the possession of material information that is not yet public. Material information is important and relevant information regarding events or facts that may influence the price of securities on the Stock Exchange and is not yet known to the public. The UUPM also prohibits "tipping", the provision of insider information to parties who can reasonably be expected to use it for transactions, which reaches not only the insider who directly transacts but the entire network of information recipients.
With the enactment of Law Number 4 of 2023 concerning the Development and Strengthening of the Financial Sector (UUPPSK), the Financial Services Authority (OJK) received a substantial strengthening of authority: administrative sanctions can now be imposed without waiting for the completion of criminal proceedings. Consequently, administrative sanctions can now be imposed based on an administrative standard of proof, which is lighter than the criminal standard of "beyond a reasonable doubt." This drastically alters the risk calculation for issuers: the effectiveness of enforcement now depends on the integrity of administrative investigations, not merely the results in criminal court. This paradigm shift carries profound legal consequences but also raises serious constitutional questions that will be discussed further.
III. Material Elements That Must Be Proven
Proving insider trading demands the fulfillment of material elements that are cumulative in nature. The inability to prove even one element is sufficient to collapse the entire construction of the accusation, and it is here that the most potential defensive gaps reside.
The first element is the insider status of the accused party. The question of whether a party can legally be qualified as an insider is not always easily answered, particularly in cases of a "tippee" receiving information through several layers of intermediaries, or consultants whose relationship with the issuer is indirect. The second element is the existence of information that is material and non-public at the time of the transaction. Materiality is tested based on the standard of a rational investor: is the information important in making an investment decision? The boundary between information still in the stage of internal speculation and that which is sufficiently concrete to be considered material is often an arena of debate.
The third element, and the most difficult to prove, is the causal nexus between the possession of material information and the decision to transact. This is where the debate between the "use" standard and the "awareness" standard becomes highly relevant. The "use" standard requires proof that the information truly served as the basis for the transaction decision. The lighter "awareness" standard only requires that the perpetrator knew the information while transacting. The UUPM does not explicitly choose between the two, leaving the judicial interpretation of this element an open issue. The fourth element is the existence of an actual securities transaction, which in modern practice involves derivative instruments and various indirect trading mechanisms whose identification requires its own analysis.
These four elements do not stand alone: they are interlocked. A regulator who successfully proves three out of four elements convincingly will still fail if the fourth element is not met. Of particular note is the normative uncertainty regarding the third element, the causal nexus, within the Indonesian legal system. The absence of an explicit choice between the "use" and "awareness" standards in the UUPM creates a space of uncertainty that simultaneously disadvantages both parties: the regulator lacks a solid normative footing to build an argument, while the accused party lacks certainty regarding the standard that will be applied against them. Normative reform establishing this standard explicitly, as done by the EU MAR, is one of the most urgent improvements that can be made without waiting for a complete legislative overhaul. This is why an insider trading evidentiary strategy must be built holistically from the start of the investigation, rather than being patched together piece by piece at trial.
IV. Challenges in Proof: Between Suspicion and Certainty
Insider trading is a violation that is inherently clandestine. No perpetrator announces their intent before transacting; no document explicitly records that a transaction was conducted based on material non-public information. This is precisely what distinguishes it from most other legal violations: direct evidence almost never exists, and regulators almost always must rely on a chain of circumstantial evidence that must be woven into a convincing narrative.
The first challenge is building a precise timeline between when the material information became available to the suspect and when the transaction was conducted. The closer the temporal proximity, especially if the transaction pattern differs significantly from the perpetrator's historical pattern, the stronger the inferential argument that the transaction was not coincidental. However, temporal proximity alone is never enough: the regulator must also demonstrate that at that time, the information was indeed within the suspect's reach, not merely circulating in the general corporate environment. The second challenge is proving that the information allegedly used was not truly public when the transaction was conducted. In an era of inevitable information leaks through various digital and informal channels, the boundary between non-public information and information already circulating among certain circles has become increasingly blurred. The argument that the information was already widely circulated in the market ("market rumor defense") is one of the most frequently used defenses and the most difficult to conclusively dismantle.
The third challenge is tracing the chain of information communication in tipping cases involving multiple parties. The fourth challenge is overcoming the "defense of coincidence", the argument that the transaction was purely a coincidence or based on independent analysis. In a legal system that respects the presumption of innocence, the burden to dismantle this argument lies with the accusing party. This is why many insider trading cases that seem intuitively obvious fail at the evidentiary level, and why the design of the proper evidentiary system, rather than mere political will to act, is the determining factor in enforcement effectiveness.
V. Evidence and Investigation Methods
Effective investigation relies on a combination of various types of evidence that may individually be insufficient but collectively form a convincing picture. Transaction data from the exchange's trading system is an irreplaceable starting point. Accurate reconstruction of when, in what volume, and at what price transactions were conducted, combined with an analysis of the perpetrator’s historical transaction patterns, allows regulators to build strong inferential arguments. Anomalies in transaction patterns, such as large-volume purchases just before a favorable announcement or massive sales just before bad news is publicized, are initial indicators that trigger deeper investigation. This "trading pattern analysis" never stands alone as conclusive evidence, but it serves as the foundation upon which other evidence is built.
Electronic communications, emails, short messages, and legally obtained conversation recordings, have now become increasingly central sources of evidence. Perpetrators often leave digital footprints far more explicit than they realize. Testimony from an insider willing to cooperate (cooperating witness) has historically been the most effective evidentiary tool: testimony from someone present in the meeting where material information was discussed can fill gaps that transaction data or written documents alone cannot. Financial forensic analysis of the suspect's wealth patterns, including sudden changes in portfolios or asset transfers to affiliated parties just before a transaction, completes the picture as significant supporting evidence.
VI. Dual-Track Enforcement: The Unresolved Constitutional Dimension
Capital market violations can be pursued either through administrative channels by the OJK or through criminal channels by law enforcement agencies. In the administrative track, the OJK can impose sanctions ranging from written warnings to the revocation of licenses. The advantage: a lower standard of proof and a theoretically faster process. However, when the administrative sanctions imposed, particularly very large fines, begin to mirror the impact of criminal sanctions, an unavoidable question arises: can such sanctions still be qualified as administrative, or have they essentially become "disguised criminal sanctions"?
This question is not merely academic. The principle of ne bis in idem, which prohibits punishing someone twice for the same act, is potentially violated if a person is subjected to heavy administrative sanctions first and subsequently prosecuted criminally for the same act. The jurisprudence of the European Court of Human Rights in the case of Engel v. Netherlands established substantive criteria to assess when a sanction formally called "administrative" must be treated as "criminal", a relevant consideration in the Indonesian context even if not directly binding. In the criminal track, Article 104 of the UUPM threatens imprisonment for up to ten years and fines of up to fifteen billion rupiah. The threat of physical imprisonment possesses a deterrent power that cannot be replaced by financial sanctions alone, particularly for perpetrators who are economically capable of absorbing the burden of a fine.
VII. Constitutional Boundaries: The Principle of Non-Retroactivity
The principle of non-retroactivity (lex temporis actus), that a person cannot be sanctioned based on a law that was not in effect when the act was committed, is a constitutional right guaranteed by Article 28I of the 1945 Constitution. In the transition from UUPM to UUPPSK, the implications are very concrete: acts committed during the validity of the UUPM must be adjudicated based on the legal provisions in effect at that time. The application of administrative sanction mechanisms under the UUPPSK to acts completed before the law came into force is a form of retroactivity that cannot be constitutionally justified.
Regulators often argue that as long as an act was still a violation under the old law, the renewal of enforcement mechanisms does not violate non-retroactivity; what is prohibited is the criminalization of acts that were previously legal, not the renewal of procedures. This argument carries certain legal weight. However, it cannot be accepted absolutely: if aprocedural change carries consequencesthat are materially far heavier, for example, fines whose magnitude far exceeds what was possible under the old law, then the substance of the non-retroactivity guarantee is violated even if the formality is met. On the other hand, the principle of lex mitior or favor rei allows for the application of more lenient provisions if the subsequent law is more favorable to the perpetrator, not out of regulatory benevolence, but due to binding legal principles. Resolving this tension requires a careful analysis of the concrete facts of each case, rather than an abstract application of doctrine.
VIII. Lessons from Other Jurisdictions and the Direction of Indonesian Reform
The United States, the European Union through the Market Abuse Regulation (MAR) 2016, and Singapore offer convergent lessons: the effectiveness of anti-insider trading provisions is not determined by the completeness of regulatory text alone. The United States stands out not because of its aggressiveness, but because of the design of proper incentives: a whistleblower program with financial incentives of up to 30% of the sanctions successfully collected, and disgorgement authority that recovers all illicit gains plus interest. The EU MAR offers a different lesson: precise definitions within the regulatory text reduce legal uncertainty often exploited as defensive loopholes. Singapore proves that investor confidence is built through consistency in enforcement without discrimination, not through regulatory updates that are not followed by genuine enforcement.
In the Indonesian context, law enforcement against insider trading still faces a clear deficit. To date, insider trading cases successfully proven and resulting in significant sanctions in Indonesia can still be counted on one hand. This is inversely proportional to the complexity of capital market transactions that continue to grow. Most OJK enforcement thus far has resulted in light administrative sanctions or settlements outside formal processes, without building strong jurisprudential precedents. This is not merely a matter of political will, but a reflection of the following three structural deficits. First, the strengthening of OJK’s investigative capacity, which includes expertise in analyzing large volumes of transaction data, digital forensics, and cross-jurisdictional cooperation through mechanisms such as the IOSCO Multilateral MoU ratified by Indonesia. Second, normative clarity regarding the standard of proof in administrative processes, including who bears the burden of proof and how circumstantial evidence is evaluated; this lack of clarity not only disadvantages the accused but also weakens OJK’s position when its decisions are challenged in court. Third, the strengthening of whistleblower protection programs with significant incentives, as information about insider trading most often originates from people inside or near the perpetrator’s inner circle, and they will not speak without strong guarantees of protection and tangible reward mechanisms.
IX. Closing
Insider trading is not merely a technical violation that only concerns capital market legal specialists. It is a structural threat to the integrity of the capital market as an institution, and thus, to the capital market's ability to perform its vital economic functions: mobilizing capital, distributing risk, and providing efficient price-forming mechanisms for the entire economy.
The regulatory framework prohibiting insider trading exists and has evolved. However, the greatest challenge lies not in the formulation of norms, but in their proof, in the consistency of their enforcement, and in the courage to enforce them without discrimination. At the same time, the urgency of enforcement can never serve as a justification for disregarding fundamental legal principles. Non-retroactivity, the right to a fair process, and the prohibition of double punishment are not obstacles to effective enforcement; they are the boundaries that distinguish law enforcement from arbitrariness in the name of the law.
The necessary reform is a balanced one: strengthening the capacity and authority of the regulator while clarifying the standards for protecting the rights of those facing accusations. An enforcement system that ignores constitutional boundaries may appear efficient in the short term, but it will ultimately erode its own legitimacy. A fair and high-integrity capital market requires both, not just one of them.