Broker-directors beware; the regulator is watching you
Stockbrokers on director boards of listed firms are on the radar of the regulator, according to informed sources.They said that now with efficient surveillance, these directors are being watched and can be detected unlike earlier. In the past there was a ‘red list’ at the Colombo Stock Exchange (CSE) where names of brokers in listed company boards were entered. “They weren’t permitted to trade on the shares of those companies they were serving,” a source close to the CSE told the Business Times. He added that this measure was aimed at ensuring a transparent market and maintaining records.
But industry analysts point out that stockbrokers on director boards of listed firms are privy to insider information and that they can trade on the shares through another person (based on insider information) or disseminate price sensitive information to a third party. More than three listed firms have broker-directors. The CSE rules say that all employees of broking firms who deal with clients are barred from insider dealing or knowingly assisting such conduct, according to CSE listing rules. “But there’s nothing specific on stockbrokers on director boards of listed firms,” an analyst said. He added that with recent capital market developments, ‘best practice’ is just a buzzword. “How would anyone know that there hasn’t been insider trading?”
Officials say that at present it all boils down to how they conduct themselves. “They should have a hands-off approach where such a company is concerned,” an official told the Business Times. He said that the CSE is currently in consultation with the industry to carry out a total overhaul of their listing rules which will incorporate certain changes to stockbrokers on director boards of listed firms. He said the first draft of the SEC Act was completed recently and that these proposed laws would be armed with rules to counter such instances.