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Insider trading? ‘Nothing wrong - we all do it’-top investor says
http://www.sundaytimes.lk/110724/BusinessTimes/bt33.html
By Quintus Perera
Insider trading is inevitable in a market like Sri Lanka and for this reason regulators should not apply rules pertaining to insider dealing to the letter, a powerful and influential investor in the marketplace has urged.
The CSE trading floor
Nimal Perera, Deputy Chairman, Vallibel One Ltd - who along with another influential business personality Dhammika Perera, currently Secretary, Ministry of Transport are powerful investors, individually and jointly in the stockmarket -, told a panel discussion on ‘Insider Trading in the Capital Market” that the market here operated almost entirely (including themselves) on insider dealings.
He valiantly defended his actions, sounding at times (to the audience) as a threat that if such investors pull out of the market the entire system in Sri Lanka is likely to fail.
His main assertion was that insider trading should be seen in the context of ‘intent (whether someone intends to pass information for profit)” or ‘non-intent (just discussing information in good faith without intending to profit from it)”.
Mr Perera’s controversial remarks justifying insider trading (the way he saw it) drew a lot of comment and discussion at the event in Colombo this week organized by the Sri Lanka Institute of Directors (SLID).
On regulations and how they should be applied, he said that whatever said and done insider dealings would be irreversible as it is the force behind the Sri Lankan market. He said that most of these investors used to meet each other in funerals and parties, etc and when they meet they would also discuss about business and spontaneously speak of the performances of their corporate achievements that would sometimes form ‘inside information’ which is genuine and spoken with ‘good-faith’.
As an example he said when he goes to a funeral he would meet an ‘aunty’ and casually speak to her of the excellent achievements of his company and the discussion might slip to what is called ‘inside information’ and that information this ‘aunty’ might pass on to her ‘boyfriend.’ Asanga Seneviratna, Director, Nations Lanka Finance, another panelist, acknowledged some of the sentiments expressed by Mr Perera.
The other panellists were Murtaza Jafferjee, Managing Director, JB Securities (Pvt) Ltd and Malik Cader, Director General, Securities and Exchange Commission (SEC) of Sri Lanka. The moderator was Aritha Wickramanayake, Senior Partner, Nithya Partners. The discussion to some extent appeared to be a dialogue between the ‘angels and devils’, with capital market traders despising the regulations and justifying insider dealings. There were accusations that information is leaked allegedly by some SEC officials and this fact could be proved if their telephone conversations are intercepted.
Mr Cader and Mr Wickramanayake insisted that rules and regulations should be in place for the sake of equality and to create a level playing field. Mr Cader said that most people do not know the provisions regarding insider dealings and they plead ignorance, but cautioned that ignorance is not acceptable under the law. He said that a well regulated market does not harm the capital market. The markets have recognized that information is very important. He said that the company directors have to be mindful of their shareholders and directors.
He said that there are two forms of insider operations viz legal and illegal. The legal form is where the ‘insiders’ should make proper disclosures to the public and to the market and the illegal way is that one deals with securities with no disclosure to the public and market. He said that some insiders pass the unpublished information to selected dealers informally in buying or selling which constitutes an offence.
He said that there should be a certain amount of transparency and integrity in these dealings and there should be a level playing field. He said that there are investors who have privileged information and there are investors who do not have such access and those with privileged information have an edge over the others.
Such offenses in Sri Lanka under Section 33A of the SEC Act are subject to penalties of upto Rs 2 million and/or two years’ imprisonment, probably the highest in the world. Such laws are also available elsewhere in the world. He said that they are striving to bench-mark the Sri Lankan capital market industry by adhering to ISO International Standards and if not they would be left out as international traders are here to see whether ISO is in place and said that they need also to look at corporate governance.
Mr Jafferjee based his presentation on a paper “Standard II: Integrity of Capital Markets” and said that those with inside information and special access can take unfair advantage of the general investing public. Though it would lead to short term profits, in the long run individuals and the professionals will suffer from such trading.
He said that it would cause investors to avoid the capital market as they would perceive the markets are ‘rigged’ in favour of the knowledgeable insider. Mr Perera, who was in a challenging mood, castigated the regulatory network as ‘chit’ and said that as the Sri Lankan market is so small the regulator network would not work and without inside information they would not be able to continue. He said that regulations and monitoring the insider dealings would kill the market indicating that if he receives a letter from SEC on account of insider dealings he would be reluctant to go before SEC and make a statement. He said that rather than facing such embarrassment, he might as well, pull out of the market.
He said that many people in this country are ‘Kuhakaya’ (hypocrite) and ‘kuhakayo (hypocrites)’ are found only in Sri Lanka as there is no parallel word for it in the English language. At the outset of his comments he pleaded that he was not so conversant with the English Language as he was from Pinnawela Central (College). (Reporter’s note: He was wrong – the English word for Kuhakaya is hypocrite – page 694 in the ‘Malalasekera English-Sinhala Dictionary.)
He said that ‘kuhakayo’ are those who complain of purported mistakes of others and enjoy when the so-called offenders are punished, but the complainant does not gain anything by the punishment to others, suggesting regulators too are in this category.
He explained the depth of ‘kuhakakama (hypocrisy)’ in Sri Lanka by saying that President Mahinda Rajapaksa is the saviour of this nation and they (he) expected 98% of votes at the presidential elections, but the President polled only 52%. Mr Perera castigated all others who voted against President Rajapaksa as ‘kuhakayo’.
The moderator, Mr Wickramanayake said that though there are stringent laws in the statute books and though the law pertaining to insider dealings is very clear, it is difficult to apply them and thus punishment is rare. He said that it is wrong for the traders to plead ignorance to the provisions of the law pertaining to insider dealings as he said that the capital market is 20 years old in Sri Lanka and it is time for the market to be matured.
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