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Insider Trading

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As the business world continues to expand in global markets, trading of shares, bonds derivatives and whatnot continues to increase. Here comes a trading that has received considerable interest in recent years called insider trading. The purpose of this work is to elucidate on what Insider trading encompasses.

According to Black's law dictionary, insider trading is defined as the use of material non-public information in trading the shares of a company by a corporate insider or other person who owes a fiduciary duty to the company. It is a criminal offense which occurs when an individual makes a ( securities trade) due to material non-public information about a company.

Insider trading is one of the very few crime that one can commit accidentally in the capital markets. For example, if a director of a company knows that the company is crashing due to some unsuccessful business risks and then sells his shares knowing that the board has decided to cut the dividend and that this will be announced in a few days, he is guilty of insider trading.

This non-public information can include anything from financial results to impending mergers and acquisition or any other significant developments that could influence the stock's price.

However, in order to ensure fairness in market price and maintain a level playing field for stakeholders and investors in the Nigeria securities market, different laws and regulations have been put in place to curb the act of insider trading such as Sec 111(1) of the investment and securities Act 2007 (ISA) and Rule 110(e) of the Securities and Exchange Commission Rules 2013.

Pursuant to Section 111(1) of the Investment and securities Act 2007 establishes that "A person who is an insider of a public company shall not buy or sell, or deal in the securities of the company". This same position has been further reaffirmed in the Rule 110(e) of the Security and Exchange Act 2013 that a person involved in any connection with the purchase of securities trading shall abstain from any act which would operate as a fraud else would be convicted as an insider trading.

 In the same vein, Section 115 ISA provides that it is a criminal offense and any person who commits such an offense is liable on conviction to a fine in the case of an individual of not less than #500,000 or an amount equivalent to double the profit derived or less averted from the use of the information obtained or imprisonment for a term not exceeding 7 years.

As an information driven market, the misuse of confidential information of a company poses serious danger to the capital markets.


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