What Is Wall Crossing?
Wall crossing is the controlled process of disclosing material non-public information (MNPI) about a proposed M&A transaction to selected investors — typically institutional shareholders of the target company or potential financiers — who are then restricted from trading in the relevant securities until the information becomes public. The term refers to crossing the informational “Chinese wall” that separates those with inside knowledge from the public market.
Wall crossing is a critical procedure in public company M&A, particularly when the acquirer or its advisors need to gauge shareholder support for a proposed transaction, secure financing commitments, or build a consortium before making a public announcement.
When Wall Crossing Occurs
Common Scenarios
| Scenario | Purpose |
|---|---|
| Shareholder sounding | Testing whether major shareholders will support a proposed bid |
| PIPE financing | Securing equity financing commitments from institutional investors for a SPAC de-SPAC or acquisition |
| Irrevocable undertakings | Obtaining binding commitments from key shareholders to accept a bid |
| Club deal / consortium | Bringing additional PE firms or co-investors into a proposed acquisition |
| Block trade | Informing potential buyers before placing a large block of shares |
| Debt syndication | Sharing confidential deal information with potential lenders |
The Wall Crossing Process
Procedure
- Identify recipients — determine which investors or counterparties need to be wall crossed
- Obtain consent — contact each party and ask if they are willing to receive MNPI (they can decline)
- Execute NDA — recipient signs a confidentiality and trading restriction agreement
- Disclose information — share the material non-public information
- Trading restriction — recipient is restricted from trading until the information is publicly announced or becomes stale
- Cleansing — once the transaction is publicly announced, the information is “cleansed” and recipients can resume trading
Wall Crossing Agreement Terms
| Term | Description |
|---|---|
| Confidentiality | Recipient cannot disclose the information to anyone |
| Trading restriction | Recipient cannot trade in the relevant securities |
| Standstill | Recipient cannot take hostile action based on the information |
| Cleansing mechanism | How and when the trading restriction is lifted |
| Duration | Restriction remains until public announcement or an agreed sunset |
| Penalty | Consequences for breach (damages, regulatory referral) |
Legal and Regulatory Framework
Securities Law
Wall crossing exists at the intersection of disclosure obligations and insider trading laws:
- Information disclosed must be genuinely material and non-public
- Recipients become “insiders” and subject to trading restrictions
- The disclosing party must have a legitimate purpose (not selective disclosure for trading advantage)
- The process must comply with applicable securities regulations
Regulatory Regimes
| Jurisdiction | Key Regulation |
|---|---|
| US | Regulation FD (Fair Disclosure), Rule 10b-5 (insider trading) |
| EU | Market Abuse Regulation (MAR) — Articles 10 and 11 (market sounding) |
| UK | MAR (retained post-Brexit), FCA rules on market sounding |
| Australia | Corporations Act s1043A (insider trading), ASX Listing Rules |
Regulation FD (US)
Regulation FD generally prohibits selective disclosure of MNPI. However, exceptions exist for:
- Disclosure to persons who owe a duty of trust or confidentiality
- Disclosure to persons who agree to maintain confidentiality
- Disclosure in connection with securities offerings
According to the Financial Conduct Authority, the market sounding provisions under MAR provide a safe harbour for wall crossing when conducted in accordance with the prescribed procedures, including record-keeping, consent protocols, and post-sounding notifications.
APAC Context
Australia — wall crossing in Australian M&A is governed by the Corporations Act’s insider trading provisions and the ASX Listing Rules on continuous disclosure. The Australian practice of obtaining irrevocable undertakings from major shareholders in scheme transactions requires careful wall crossing procedures.
Japan — wall crossing in Japan is governed by the Financial Instruments and Exchange Act’s insider trading provisions. Japan imposes strict penalties for insider trading, and the wall crossing process requires careful documentation and compliance with J-IRISS (Japan Insider Registration & Identification Support System) for market soundings.
India — SEBI’s Prohibition of Insider Trading Regulations govern the disclosure of unpublished price sensitive information (UPSI). Wall crossing in Indian M&A requires legitimate purpose, appropriate confidentiality agreements, and compliance with SEBI’s trading window restrictions.
“Wall crossing is the gateway between confidential deal-making and public markets — getting it wrong can have severe regulatory consequences,” observes Daniel Bae, founder of Amafi. “In APAC, where insider trading enforcement is intensifying across all major markets, rigorous wall crossing protocols are essential for every public company transaction.”
Managing confidential deal processes across Asia Pacific? Amafi helps companies and investors navigate regulatory compliance and market protocols. Learn more.