It was not long ago that a large investor in the Sri Lankan stock market publicly declared that, ‘there is nothing wrong in insider dealing because we all do it’, and this was in the presence of all the regulators and other good governance activists. Isn’t it time that the SEC of Sri Lanka made a mandatory policy disclosure to prevent insider dealing. Of course everybody will agree that the intent is clear but there is inadequate disclosure and compliance monitoring in this area.

Companies should be mandated to disclose an insider dealing policy which establishes the rules and procedures, to minimize risks of entering into insider dealings with the Securities by persons discharging managerial responsibilities. Such  restricted persons should include the Members of the Board of directors, CFO and Heads of Divisions. Companies ‘owned’ by these restricted persons also should be covered by the rules.

The Restricted Persons should be prevented from trading/dealing in Securities of the company and not be permitted to enter into any  dealing with the Securities prior to obtaining clearance in accordance with the rules and procedures. There could be defined circumstances where clearance can be obtained for acquisition or disposal, for example transfer of securities within the family, rights issues or for gifting. 

The policy should have a strict “prohibited period” for buying or selling by any restricted person. A Restricted Person should not be given clearance to deal with the Securities during a “prohibited period” or where the investment is of a short term nature or for trading purposes. Any such policy should also include a consequence for non compliance. If non compliance is at the highest level then they should be reportable offenses to the SEC. SEC should have sanctions built into the law to make a serious commitment to prevent insider dealing with an efficient enforcement framework


About surenraj

“Views expressed are my own”
This entry was posted in Governance and tagged , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s