An Appellate Bench of the Securities and Exchange Commission of Pakistan (SECP) has remanded the case of insider trading to the SECP investigators, to ascertain whether a private limited company disclosed financial results before its public dissemination, which was not available publicly and was inside information. The Appellate Bench-I of the SECP has issued an order (appeal number 2 of 2013) in the case of an insider trading.
The SECP had issued an order against the company and also imposed penalty on the same. The company filed an appeal with the Appellate Bench of the SECP against the order of the Director/HOD SECP. According to the order of the SECP Appellate Bench, the observations raises further questions about allegations of insider trading and transparency. Therefore, in light of the foregoing, the bench remands the Impugned Order to the Director/HOD SECP for review and to further investigate allegations of insider trading by the Appellant (company) in light of observations.
The company's counsel argued that the requirements of 'inside information' and 'insider trading' have not been met. Insider trading is defined in section 15A (2) of the Companies Ordinance which outlines four necessary pre-requisites to be satisfied. Section I 5A(2)(a) of the Ordinance is not applicable as the Appellant (company) did not transact any deal for itself; section 15A(2)(b) of the Ordinance is not applicable because the Appellant did not pass on or disclose any inside information to the Fund; section 15A(2)(c) of the Ordinance is not applicable because the Appellant did not possess or disclose any information which was not already known to the BOD; and section 15A(2)(d) of the Ordinance is not applicable because the Appellant did not make any suggestion or recommendation to the BOD;
The quarterly financial statements of listed companies are published within one month of the close of the accounting period. Accordingly, all material information for the nine months ended 31/0312 was in the knowledge of the general public and the shareholders. The annual performance and anticipated financial results, as analysed by the market, was extremely close to the actual results when officially announced. The information regarding the expected final cash payout along with the issue of bonus shares was already publicly available in research reports of various analysts. The department's representative argued that all the three components of section 15 of the Ordinance are present in the instant case. In the instant case, the financial results and payouts was inside information and the buying of shares by the Fund on the basis of inside information just days before the announcement of financial results constitute insider trading. The timing of the transactions by the Fund creates serious doubts about the independence of their decision to buy shares. It is highly likely that the trading by the Fund in the shares was on the basis of inside information, regarding final results of the company. The timing of the transactions by the Fund creates serious doubts about independence of their decision to buy the shares. The Fund bought the shares during the Closed Period which indicates the dubious nature of the transactions.
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