Securities Board to crack down more sternly on insider trading

- Rajesh Khanal, Kathmandu

Jul 11, 2019-

The Securities Board of Nepal has proposed to amend the existing Securities Act to give it more teeth so it can crack down more sternly on insider trading. Insider trading, or buying or selling of securities by someone who has information that is not available to the public, is one of the common securities frauds.

The information is usually leaked by a member of the board of directors, company employee, shareholder 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 make undue profits.

Anyone who illegally uses access to confidential, price-sensitive information relating to securities of any company for profit in the stock market can cause heavy fluctuations in share prices of listed companies.

Securities Board spokesperson Niraj Giri said they plan to insert a provision in the new act for a fine of up to Rs4 million against those involved in fraudulent cases including insider trading.

Giri said the amended act would also include provisions on alternative investment, CDS and Clearing and collective investment that are not clearly defined in the existing act. According to him, they sent a copy of the draft law to the Ministry of Finance two months ago.

The Securities Act 2007 puts fake trading, manipulation to influence stock prices, supplying misleading information, and fraudulent transactions to defraud others under the purview of insider trading.

Offenders are fined in a sum equal to the amount in question or jailed for a year. In case the amount in question is not certain, the maximum amount has been fixed at Rs200,000.

In the 12 years since the law was passed, not a single person has been punished on the charge of insider trading. The Nepal Stock Exchange has only temporarily suspended trading in shares of such companies.

Insider trading cases are suspected to have risen of late with banks and financial institutions looking to merge due to pressure from Nepal Rastra Bank. The central bank has asked banks to submit their merger plans before the monetary policy is issued next week.

Last May, Shine Resunga Development Bank and Bhargav Bikas Bank signed an agreement to merge, but they made the announcement only a few days later by when their share prices had jumped.

In another incident, Prime Commercial Bank and Om Development Bank had been engaged in their unification plan for a long time, and had announced their proposed merger accordingly. Last month, they dropped the plan which caused their share prices to fluctuate.

The Securities Board had planned to enforce a code of conduct for market participants to curb insider trading; but except for warning the offenders, it has taken no further action. According to the board, it asked for clarification from more than three dozen of firms in this fiscal year for suspected involvement in insider trading.

Giri said the board was also drafting a separate regulation to curb insider trading. “The regulation will prescribe a mechanism to identify insider trading cases,” he said

Published: 12-07-2019 08:00

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