Illegal insider stock trading requires a stronger deterrent from regulatory agencies to stabilise the market sentiment, according to tinnhanhchungkhoan.vn.
Screens showing stock prices. Recent insider stock trading violations show the need for market regulators to impose penal sanctions. (Photo: tinnhanhchungkhoan.vn)
Insider stock tradingamong business leaders has existed for years and been a thorn in theside of investors due to a lack of appropriate punishments.
In the past sixmonths, the State Securities Commission (SSC) has punished several companyleaders for violating rules on the transparency of stock trading.
On July 3, the SSCissued a fine worth 17.5 million VND (752 USD) on a member of the board ofdirectors in Ca Mau Water JSC (UPCoM: CMW) for selling the company's sharesbefore the allowed period.
A fine worth 55million VND was imposed on a deputy director of Vinacomin-Water Transport JSC(UPCoM: WTC) as he bought shares without reporting the deal to the SSC and the HanoiStock Exchange (HNX).
Such transactionscause concern as the firms' leaders will have more informationthan other investors, allowing them to make personal profits.
Some investors arequestioning whether insider trading is illegal or not and what lies behindthose leaders’ actions.
According to EiichiroKawabe, deputy commissioner for international affairs at the Japan FinancialServices Association, many company leaders and those with similar benefitslearn information earlier than common investors to do non-public deals thatbring them profits.
If the marketregulator is not sharp enough, such wrongdoings may erode investors’ confidencein the equities market.
Hoang Van Cuong, memberof the National Assembly’s Finance and Budget Committee, said there must be aregulation to deal with such wrongdoings soon to help the equities marketdevelop transparently and healthily.
Experts havesuggested illegal insider stock trading must be handled by penal sanctions, notby fines, with the sanctions stated in the Law on Securities, which isbeing discussed in the National Assembly.
One measure is toforce business leaders to clarify why they made illegal insider transactionsand to publicise those reasons.
Some analysts andinvestors have suggested those violating the rules must be fined heavily and berestricted from trading stocks for a period of time.
However the new Lawon Securities, which is expected to be passed late this year, doesn’t containany penal actions for wrongdoings on the market.
The proposed maximumpenalty for an individual violation is 1.5 billion VND and 3 billion VND for anorganisational action.
According to EiichiroKawabe, information transparency is an important and decisive factor todetermine how resources are allocated on the equities market. That requiresmaterial information to be provided accurately, fully and be understandable.
If existingpunishments are not strict enough to deal with market wrongdoings, investorswill lose confidence in the market.
Therefore, it isimportant to increase sanctions for trading violations. In Japan, penalpunishments are used alongside fines to ensure insider trading doesn’tdestabilise the market.
In addition, marketmembers and regulators must improve their systems and technologies todiscover and prevent illegal insider trading.-VNS