Why aren’t regulators punishing those involved in insider trading?

ShareSansar, September 16:

Despite the directive issued by Nepal Stock Exchange Limited (Nepse) to the listed companies not to take any decision within the trading hours that can directly influence the price of scrips, and the internationally practiced norms against insider trading, some of the listed companies apparently have not been obeying such rules.

For instance, looking at today’s floor sheet and other inputs, around 1 lakh unit shares of Kumari Bank Limited was traded in the first hour of trading even before the dividend pledged by bank’s Board of Directors was published on Nepse’s website.

Even if we give benefit of doubts to the company since today was the last day for the bank to meet the paid-up capital requirement of Rs 2 arba, Kumari Bank’s stock was traded massively even yesterday when the total market turnover was pretty low. How do you explain that? Moreover, most of us are aware of numerous such cases.

So, why can’t the regulators do something about it? Can’t they initiate legal action against the listed companies that defy their laws?

“As we all know Nepse had issued the directive to the listed companies not to take any decision within the trading hours. The idea is to enforce corporate good governance and discourage insider trading,” says Nepse Spokesman Shambhu Panta. “But it is difficult to regulate the BoD meeting of the listed companies. Moreover, we don’t have any legal basis or authority to initiate legal action against them.”

The Nepse official further said that since Sebon is the market regulator, it should now draft legislation to directly take action against the listed companies that are resorting to such malpractices or to authorize Nepse to punish such companies.

He also said that top Nepse officials have already told Sebon officials that some of the listed companies have been clearly resorting to insider trading and leaking crucial information wrongfully even during the trading hours.

Sebon director and spokesman Niraj Giri admits that Nepse officials have been complaining that some listed companies have been resorting to insider trading and defying its directive not to take decisions that can affect the share price within the trading hours.

“We are holding discussion with Nepse and other stakeholders to discourage such bad practices,” Giri said.

When ShareSansar asked the Sebon official why can’t they make such bad practices punishable by law, he said that they can do that with the help of Nepse.

“See, Nepse is also a kind of frontline regular. It can warn the listed companies for defying its directive and it can also urge us to amend its listing by-laws to make such listed company or whoever is responsible for wrongly leaking crucial information to some vested interest groups.”

Now it needs to be seen if Nepse and Sebon would work together to strongly discourage insider trading and other practices that goes against corporate good governance. Such ill practices has been affected the general investors the most as the big and institutional investors tend to have much stronger relations with the listed companies.