The Business Times poll on insider trading drew many comments with most respondents saying that it is essential to ensure a level playing field in the market and not provide privileges to any individual groups.
Here are the ‘quotable’ comments that were received and from those who declined to be named:
Upul Arunajith, a Sri Lankan-born hedge specialist based in Canada:
While, insider trading walks the fine line (asset managers, hedge funds can pay for research) such research can give the funds the same kind of advantage or more analysis than insiders may have access to in isolated situations. But then that is paid research. Whether the Sri Lankan capital markets and asset managers have reached this threshold remains to be seen. Yet a handful of people cannot demand that the regulator relaxes the applicable rules so that they can have field days placing the majority of investors at a disadvantage. I am a strong advocate of a ‘level playing field’ so that all players have equal opportunity at being successful.
Kajanga B. Kulatunga, Investment Specialist based in Australia:
I’m amazed to find participants questioning the need to effectively monitor insider trading. That it cannot be effectively done should be beside the fact that it should be done. The sole purpose of a public securities market is for an efficient price discovery mechanism. If prices are not the reflection of an independent judgement (analysts herding is another matter all together) of a company’s health, we might as well scrap a public market and instead go back to private partnerships. Public markets exist to make funding cheaper for entities, in exchange for close scrutiny of their operations. If the price of a firm (subject to psychological sways at the best of times) is further shrouded in inside information, it weakens the case for all listed companies alike.
Most people have an ethical blind spot. Faced with a potential conflict of interest, you automatically conclude that it couldn't possibly offer any temptation to someone of superior character—like you or those closest to you.
A survey of nearly 1,000 Wall Street analysts found that two-thirds have accepted favours from the companies they follow—everything from career advice to reference letters for admissions into private clubs. Analysts who accept such favours generally deny that their integrity has been compromised—yet are twice as likely to maintain their rating after an earnings shortfall by a company that provided them with favours.
Trading on insider information is not in anyone’s best interest.
Murtaza Jafferjee, Managing Director, JB Securities (Pvt) Ltd and a panellist at the insider trading discussion:
The current SEC Act recognizes insider trading to be a criminal act thus successful prosecution requires the burden of proof to be "beyond reasonable doubt", the new SEC Act will also include civil action that only requires a burden of proof to be "balance of probability", this should improve the rate of successful prosecutions.
A capitalistic system is based on the presumption that individuals operate as to their own self-interest and, in order to ensure equality and fairplay for all, laws and regulations are guided by moral philosophies that reflect society's value systems. How can such laws and regulations be changed to suit the value systems of only a few individuals? Should we not aspire to higher ideals?
The position of a director places one in a fiduciary responsibility (a position of trust), it is a necessary condition that one surrenders some of one's personal rights like being able to trade in the shares of the company during sensitive periods. I find it amusing how some people can put up a spirited defense to revoke these rules when you consider that a company director's primary responsibility is towards increasing long term shareholder value, if this thesis holds why would one want to trade the company's shares frequently, should not logic dictate that one should have a buy and hold strategy?
Comments from respondents who declined to be named:
- Bending the rules is akin to a situation in the country where laws are not strictly enforced. Under Attorney General's advice even when the SEC gets enough evidence to prosecute a case they are forced to withdraw it as reported in the Business Times some time ago.
So the problem with the stock market is just a small side of the overall problem affecting the country.
nInsider trading has been identified not only as one of the most corrupt practice but one that holds the private sector hostage to special vulnerabilities.
- If the rules are not applied what about the less privileged investors who have no access whatsoever to inside information of listed companies? Why should they invest at all when they see a distinct disadvantage by being small-timers? What happened to M. Vignarajah who spoke on behalf of small-timers? Receiving a Letter of Demand for Rs.100 million for doing just that. What a shame? In contrast investors and SEC should take a lesson from the US as to how rules should be enforced against ‘Insider Trading’.
- Rules are necessary against insider trading particularly if Sri Lanka is genuine in its attempt to attract increased foreign investment. Non enforcement of insider trading rules and regulations can only serve as an disincentive to overseas investors. Even locally, why should a privileged few have an advantage over the general public. This gap is what the regulations try to cover.
- (High networth investor says) - I think if we act like the CID and treat every transaction as being a result of insider trading, it is impossible for high net worth individuals to buy and sell stocks.
nInsider trading regulations protect individual small investors from the sharks. This democratices the stock market and increase investor confidence in the market, overall.
- I think it is very dangerous if overseas institutional investors form a view that the market is not well regulated. Then Sri Lankan companies would find it difficult to attract reputed funds who would want to take a long term view.
- Those who engage in it should be hauled before the courts and punished.
- nAnyone who trades on insider information should be dealt with the law irrespective of their supremacy. Investing in capital markets should be fair to all.
- The last thing the market would want to hear is that the SEC is encouraging insider dealings.
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