Journal :
Research Paper
Author/s :
Year :
2012
Main Issue/s :
Country/ies Involved:
Malaysia
Statutes :
Summary/Discussion
INTRODUCTION
Insider trading is buying or selling of shares by people who knows or is in possession
of certain information about the shares and the information is not yet release. Insider trading
regulation is necessary as it is potential to diminish or increase investors confidence. The
information that is not release is such a nature because if known to the public would impact
on the price of the shares. So, the insider uses the non-public information to derive profit or
avoid loss by selling or buying securities. The reason is to preserve market efficiency and
promote fairness among all shareholders. All investors should have equal access to material
corporate information and directors of company or corporate executives are likely of this
offence because having control of companys property. Therefore, they are in position to
explore and exploit to their advantage information about the company operations which are
secret outside the board room. Violation of confidential information by insiders is one of the
corporate governance issues affecting security industry. So, various theories have been cited
to justify formulation of policies and regulations against insider trading.
SCOPE OF THE STUDY, METHOD AND LITERATURE REVIEWS.
Include qualitative analysis involving the analysis of relevant statutes, law reports as
well as documents in the Parliament, Security Commission and Polis Diraja Malaysia.
The Companies (Amendment) Act 2007 unfortunately retains the undesirable position
under the old law. The requirement pertaining to the manner the information must be acquired
remains under section 132(1G(c). There is nevertheless some improvement with regard to the
second comment above. The Securities Industry Act 1983 has brought about some changes
pertaining to this issue. The provision though does not settle the issue once and for all. This
may give rise to a question whether the definition would also cover imprecise information in
order to constitute the offence. The answer is probably in the affirmative due to the generality
of the phraseology employed.
On the issue of the persons whom the law holds as liable for insider trading offences,
section 132B provides a slightly broader definition than sections 132(2) and 132A. Section
132B expands the scope of the prospective offender to include persons who hold former
official capacity in the company or the Stock Exchange. These people are literally the
insiders to the company. While the widening of the scope to include ex-staff registers some
improvement, the measure is far from being sufficient. It is the misusing of the confidential
information with the purpose to gain profit or avoid loss that forms the reason behind the
provisions in question. The loopholes if go unaddressed will certainly defeat the spirits of the
law against the prohibition of the offence.
Section 89E (1) of the Securities Industry Act 1983[2] improve the matter in relation
to listed companies by declaring a person to be an insider if the person possesses information
that is not generally available which on becoming generally available a reasonable person
would expect it to have a material effect on the price or the value of securities and knows or
ought reasonably to know that the information is not generally available. The definition is
wide enough to cover not only those who have employment, business or professional
connection with the company but also those who are without. Considering that it is inherently
unfair for a person to take advantage of such information, the non-relevance of the
connection in the definition of insider is a commendable move by the Parliament. With this
provision it is a settled position in Malaysia now that with regard to listed corporations
insiders will include the traditional insiders, shareholders and any person who has access to
inside information.
On the issue of the prohibited conduct and its punishment, section 89E of the
Securities Industry Act 1983 makes dealing in shares an offence. On the issue of punishment
subsection (4) states that contravention of the provision containing these prohibited activities
is an offence and is liable on conviction to a fine of not less than RM1 million and to
imprisonment for a term not exceeding ten years. The mandatory imprisonment especially is
meant to scare the criminals and deter prospective offenders in the future from utilizing
corporate information for personal gains. The one million ringgit fine alone might not be a
deterrent punishment if the traders view the fine as an offset against the more lucrative gain
from the dealings.
Act 1983[3] allowing a person who suffers loss or damages by reason of the insider trading to
recover the amount of loss or damages by instituting civil proceedings against the other
person, whether or not the other person has been charged with an offence in respect of the
contravention or, whether or not a contravention has been proved in a prosecution.
Rules regulating insider trading also found its way into the Bursa Malaysia under
Main Market Listing Requirement. Section 9.19 of the Bursa Malaysia under Main Market
Listing Requirement lists down circumstances in which a listed company must make the
announcement to the Exchange. The absence of this qualification in the new provision of
section 132(1G(c)) under the 2007 Amendment, which prohibits a director from using any
information to gain benefit, raises a question whether the amended provision provides an
extra protection to the investors.
CONCLUSION
It is a well-recognized fact that legislation can be an effective tool to create an
encouraging business environment. The purpose of this paper which is to analyse the
frequently reiterated issue of insider trading in Malaysia raises a number of issues. It
identifies problematic and unsatisfactory provisions and analyses the potential outcomes of
the provisions and the difficulties brought about if the problems remain unaddressed. These
issues if left unattended would create a disadvantage for business firms in Malaysia as they
do not promote competitive capital market in the region. Specifically, the provision on the
manner the information must be obtained is not a creditable solution-requiring the acquisition
of the confidential information which must be by virtues of the traders position in the
company is too restrictive, and hence is not necessary if greater protection is to be granted to
investors. This requirement may be seen to have a bearing with the definition of insider trader
which hinges closely on the concept of fiduciary obligations.