‘Insider trading’ in the stock market of Bangladesh
Insider trading means any price sensitive information of securities or stock of a company which has not published publicly but known by some handful people who use the information for their benefits. Generally, price sensitive information of a company first publishes on the website but before publishing it, the insider traders know it. They use the information to buy, sale and transfer shares to make profit. Insider traders in the stock market are not few; they have syndicates who are engaged with insider trading. The people from inside and outside of the company are involved with this business. The outsiders have good connections with inside people of the company and with the help of insiders they do illegal trading.
It has been seen that after getting the information, the syndicates of insider traders buy huge number of shares. At a convenient time they publish the information in the market and sell shares at a higher price. Sometimes the directors or employees of a company buy shares in the name of their wives, children or close relatives. Again by imitating them the people related to broker houses do presume the condition of the company. As a result, they also start to buy the shares of that particular company or say others to do that. Nowadays, insider traders use social media to do insider trading. There are several facebook and whatsapp groups where the sensitive information of companies given by the insider traders. People of these groups are waiting for the information and after getting it they act according to that. Considering the fact recently, Bangladesh Securities And Exchange Commission (BSEC) issued an order regarding disclosing information through social media.
The whole process of insider trading makes deceive with the other shareholders of the market. To protect them there are several laws introduced. In the Securities and Exchange Ordinance 1969, section 19 talks about the maintenance of secrecy where it clearly says that no person can disclose any information to anyone without the permission of the commission which he got through performing any function but yes, the information can be disclosed if any person is legally entitled to get it. Section 19 (A) which added in 2012 through an amendment have cleared the position of the existing and former chairman, member and employee of the commission that they will not disclose any information to anyone except legally entitled to someone which they obtained, entrusted or accessed in the performance of any function under this ordinance. If any person violates any of these two sections for the purpose of making profit will be considered as an offence. The person will be imprisoned for a term which may extend to five years or fine not less than five lakh taka or both.
Apart from this, the definition of insider trading can be found in Securities and Exchange Commission (Prohibition of Insider Trading) Rules 1995. This rule has said that insider means a person who is a director, principal stockholder, managing agent, banker, auditor, advisor, officer or employer of any company. Further, it added that any person who has good relation with the mentioned people or with the company or because of his position the person may know any price sensitive information or have the opportunity of knowing the information will be considered as an insider. If anyone involves with insider trading then Securities Exchange Commission may cancel or suspend the license of that person where he is a stock broker or stock dealer. Also, it may direct him for a specified period to take over the charge of or not to transfer the share or stock acquired through insider trading.
The practice of giving pecuniary punishment should be in higher amount of money otherwise the offender will do the offence again and again. In the stock market, it is difficult to do examine the rumours of price-sensitive information. Mostly people who have huge capital or power can verify the truth of the rumours but small investors don't have that capacity. They fall with the rumours of insider traders and make loss in the market. This illegal trading deprives them from knowing price sensitive information at right time which causes financial loss to them. The authority needs to be strict in this regard and punish the offenders. In past, we saw many incidents where people lost their lives and families destroyed because of the unethical practices in stock market. This can happen again and that is the reason BSEC should look after this, otherwise, the lack of trust among people will reduce the investment and the market will lose its efficiency.
The writer is a current LL.M student of North South University