Friday, February 8, 2013

Insider Trading

The term ‘insider trading’ typically evokes images of nefarious plots and shady dealings. And indeed, illicit insider trading often fits that description. However, it is important to recognize that legal forms of insider trading also exist, whereby the insiders of a company are allowed to trade in the securities of the company entirely within the parameters of the law.

‘Insiders’ – a term which is often defined to include officers, directors, executives, related parties, as well as every person within a public company who has access to undisclosed material information by virtue of their position – are bound by strict rules that require timely reporting of material information.

Insider trading is illegal when an insider buys or sells securities with special knowledge of material information that is still non-public. The trading of securities based on a tip-off of such information before it is publicly disclosed is also illegal. Naturally, insider trading will be legal once the material information has been made public as the insider would not gain any unfair advantage over other investors.

The regulatory regime for public companies in Oman under the Capital Market Authority (CMA) is guided by stringent rules to deter illegal insider trading. Omani corporate law and the CMA Executive Regulations forbid an insider from trading in the securities of the issuer for the period from gaining access to any material information until the information is publicly disclosed. Omani law mandates immediate disclosure of material information by Muscat Securities Market-listed public companies. The issuer is also charged with the responsibility of maintaining utmost confidentiality of the information until its public disclosure.

As an exception to prompt disclosure, material information may be withheld if reasonable grounds exist to consider that such disclosure could damage the issuer’s interest and needs to be delayed until such time as such grounds cease to exist. For example, the law allows for delaying the disclosure of specific information, if such disclosure could (a) prejudice achieving the business objectives of the issuer, or (b) compromise the competitive advantages of the issuer.

As to what constitutes material information, the law offers a non-exhaustive list of what could be construed as material information, such as information regarding:

  • significant changes to company assets; 
  • material losses that could impact the company’s financial position; 
  • significant changes to the capital structure (e.g., capital increase or capital reduction); 
  • significant changes to the shareholding with potential to cause change of control; 
  • changes to capital investment; any merger process in relation to the company; 
  • voluntary liquidation; 
  • any new appointments to the Board or to senior executive management; 
  • or material changes to the accounting policy.