Tougher action planned against insider tradingThe Securities Board of Nepal is in the process of drafting the Insider Trading Regulation that proposes tough criminal penalties for anyone who uses access to confidential, price-sensitive information relating to securities of any company for profit in the stock-market.
The Securities Board of Nepal is in the process of drafting the Insider Trading Regulation that proposes tough criminal penalties for anyone who uses access to confidential, price-sensitive information relating to securities of any company for profit in the stock-market.
Insider trading refers to the buying or selling of securities by someone who has information that is not available to the public. This information is usually leaked by a member of board of directors, staff, shareholders or a professional service provider.
In many cases, board members of companies were found revealing information to relatives and confidants who subsequently used the information to profit.
According to the sector’s regulator—Securities Board of Nepal (Sebon), as of now, no such incidents of insider trading have been found.
However, many firms listed at the Nepal Stock Exchange (NEPSE) have been suspected of being involved in insider trading to obtain undue benefits from fluctuations in share prices.
Although the Security Act 2007 talks about checking insider trading, there is no regulation as of now to check the malpractice. The act talks about penalising the convicted with cash penalty or jail term of up to one year or both.
However, the act does not state precisely on the amount of cash penalty. “The new regulation will formulate procedures to identify insider trading and the persons involved in them,” said Niranjaya Ghimire, deputy spokesperson of the board. “The regulation will also fix the cash penalty amount.”
Over the last one month, NEPSE took action against 14 firms on suspicion of being involved in insider trading. These involved Kabeli Bikas Bank, Saptakoshi Bikas Bank, Taragaon Regency Hotel, Salt Trading Corporation, Om Development Bank, Midas Securities, Central Finance, Kalika Microcredit, Nepal Community Development Bank, Mega Bank, Himalayan Bank, Mission Development Bank, Sunrise Bank and Shangri-La Development Bank.
Most of these firms failed to report to the regulator on time over the dividend they planned to offer to their shareholders. The authorities however have no mechanism to detect or penalise insider trading.
These companies have been suspected for leaking the information of their board decisions before sending the information to the NEPSE. Other than NEPSE barring these companies on shares transaction for the time being, no other actions were taken against them. Ghimire said the absence of mechanism to identify the persons involved in insider trading was the main reason behind not taking further action.
Last July, the securities board was supposed to enforce a code of conduct for market participants to curb insider trading, which it has failed to impose even till now. Except for warning the offenders, no further initiative has been taken by the regulator over the period.
With the regulator being all bark and no bite, many firms are blatantly breaching the rule by not providing their financial record to Sebon on time. In the past few months, the board has asked for clarification from 31 such firms.
Firms suspected of insider trading
- Kabeli Bikas Bank
- aptakoshi Bikas Bank
- Taragaon Regency Hotel
- Salt Trading Corporation
- Om Development Bank
- Midas Securities
- Central Finance
- Kalika Microcredit
- Nepal Community Development Bank
- Mega Bank
- Himalayan Bank
- Mission Development Bank
- Sunrise Bank
- Shangri-La Development Bank