Experts lock horns on insider trading

Stock market experts on Tuesday locked horns on the contentious issue of insider trading at a Sri Lanka Institute of Directors (SLID) forum spiced with impish remarks and exposing clear division on how to deal with the criminal offence under the law.

Panelist top investor and director of several companies Nimal Perera’s choice of words in his natural style perhaps made senior and more conventional SLID members’ red-faced but he drove home the point that in a close-knit community of investors or otherwise every one could posses inside information if any.

In that context he said that the capital market regulator SEC should first assess whether those involved in a suspect insider trading case had a ulterior profit motive or not. “In a community when all could be insiders including regulators or have access to inside information, what matters is the intention,” Nimal argued.

His analogies to drive home the point of an inter-connected society such as sharing unpublished company profit information with an aunt upon a genuine spontaneous inquiry and her sharing that information with her boy friend who may trigger a suspect insider trading, saw participants burst out with laughter at the SLID forum. However IMF Resident Representative Koshy Mathai, a participant later on during an interactive session at SLID forum noted all women weren’t his aunts and all men cannot be her boyfriends; hence urged caution on such reference to dismiss the gravity of insider trading.

In his presentation Nimal noted that he is perhaps the biggest trader in the Colombo bourse as well as serving on several Boards and though he doesn’t overly care about rules he makes timely disclosures. However he suggested that considering the Colombo market’s stage of development, regulations were too rigid and puts off the active traders.  “The SEC shouldn’t hound the very few who actively trade and sustain the very stock market,” Nimal added.

He also used the Sinhala word “Kuhakakama” to explain the uniquely Sri Lankan mindset of some wanting to unjustly harass those who doing well and bring their downfall, not for financial gain but for mere personal pleasure.

Nimal also said that unlike in the past the Colombo stock market doesn’t react to price sensitive information and he cited cases of impressive results, bonus or dividend announcements failing to boost share prices. He implied that investors by virtue of all being “insiders” the market had already factored in such moves into respective share prices of companies.

Another top investor and former broker Asanga Seneviratne who was a panelist whilst emphasising that laws are necessary to curb illegal or malpractices the SEC should not rush too harsh regulations which are best suited for sophisticated markets of the West to evolving market in Sri Lanka. He opined that the three-day restriction for directors to trade in company shares post or pre-release of price sensitive information must be reconsidered.  Giving credit to the SEC, Seneviratne also held the view that Colombo has remained a “clean” market with no default but noted “in that context it is over regulated.”

A participant, and technical research specialist at Capital Trust Securities Sarath Rajapakse chipped in saying markets are considered most efficient and inside information is part of that system hence preoccupation on the part of the SEC to nab insider traders is a “futile witch hunt.”

Chemanex Managing Director Prithi Jayawardena a participant at the Forum said that implementation of the laws to the very letter would kill the market.

Moderator Arittha Wickramanayake, a former Director General of the SEC, noted that it was difficult to prove insider trading whilst the more stringent US, and UK had succeeded in only a few cases.

JB Securities Managing Director Murthaza Jafferjee said that strict laws and enforcement on insider trading were critical to ensure fairness, transparency, confidence and trust in the market, a point which was subsequently endorsed by IMF’s Mathai. The need to uphold the laws of the country and core values in a society was also stressed.

SEC Director General Malik Cader said that in post-war rebound and at a time when capital market is drawing more people, effective laws and regulations against malpractices were more important.

The Forum also emphasised the importance of greater education and awareness of the insider trading laws among investors as well as directors. The point of improved board room ethics and good corporate governance, timely disclosures, were also stressed. Issues such as strict applicability of the laws, definition of materiality, were also discussed.