Who is an Insider?
An insider is any individual who has access to material, non-public and price sensitive information about a Company and includes an employee, a Director, person discharging managerial responsibility or an adviser of the Company.
Price-sensitive information refers to any information that materially affects the value of the securities of a Company. Consequently, insider information is information that can be of financial advantage/benefit if acted upon before it is generally known to shareholders.
Insider dealing on the other hand is an unfair practice, which involves the buying and selling of a Company/Issuer’s stock or other securities by an insider who has access to non-public and sensitive information about a Company/Issuer to make profit or avoid incurring a loss. It alters the level playing field of the capital market and leads to insider abuse in the stock market.
A material, non-public information accessed by any person can in fact substantially impact an investor’s decision to buy or sell the security. Therefore, any individual who possesses material insider information would have an unfair edge over other investors who do not have the same access and could potentially make larger and unfair profits than fellow investors.
A Company’s confidential information qualifies as property to which the Company has a right of exclusive use. The undisclosed misappropriation of such information is violation of a fiduciary duty which constitutes fraud, similar to embezzlement (the fraudulent appropriation to one’s own use of the money or goods entrusted to one’s care by another).
Closed Period
Closed period is any period during which trading in a Company/Issuer’s stock or other securities is restricted. During this period, the trading window is usually closed to insiders of the Company/Issuer and their connected persons.
The closed period shall commence prior to the release of any price sensitive information, and the period shall cover various instances which include – Declaration of Financial results (quarterly, half yearly and annually); Declaration of dividend (interim and final); Issue of product securities by way of public offer or rights bonus; Any major expansion plans, launch of new product; Amalgamation. Mergers, takeovers and buy-back; Disposal of the whole or substantial part of the undertaking; Any changes in policies, plans or operations of the Company that are likely to materially affect the price of the Company’s securities; and Disruption of operations due to natural calamities; Litigation/dispute with a material impact. [4]
Trading Restrictions
The period prior to disclosure of price sensitive information is particularly sensitive due to the fact that insiders and connected persons would during that period, usually possess unpublished price sensitive information.
The period of closure takes effect from the end of the financial period in review (quarterly, half yearly or annually), or fifteen (15) calendar days prior to the date of any meeting of the Board of Directors proposed to be held to consider any of the matters earlier referred to, or the date of circulation of the agenda and Board papers pertaining to any of the matters referred to above, whichever is earlier, except for the declaration of financial results and dividend; and up to twenty-four (24) hours after the price sensitive information is submitted to the Nigerian Exchange Limited (NGX) via its Issuers’ Portal.
Furthermore, every Company/Issuer is mandated to notify the NGX in advance of the commencement of each closed period. It is worthy to note that no Company/Issuer is permitted to suspend a closed period after it has been announced.
With the prior approval of the NGX, there are exceptional cases where trading may be permitted during a closed period. These include:
- To execute transactions pursuant to statutory or regulatory obligations or court orders;
- To exercise stock options under a pre-existing employee stock option scheme; and
- To execute large volume trades or block divestments between Insiders only.
The NGX may refuse to grant approval for trading during a closed period, where it considers that such a trade if allowed will interfere with the fair and orderly functioning of its market.
Further to the above, individuals are advised to exercise due care and should seek approval/guidance from the Company Secretary as required.
Contravention of the laws prohibiting insider trading carries stiff penalties. Where a Company is in breach, the NGX has the authority to suspend the Company from trading or delisting its securities.
The Investments and Securities Act 2007 empowers the Securities and Exchange Commission (SEC) to void any transaction done in contravention of the Law and relevant regulation. Depending on the severity of the offense, contravention attracts a fine of not less than N500,000 or an amount equivalent to double the amount of profit derived or loss averted and, or imprisonment for up to seven (7) years in case of an individual convict; and N1,000,000 fine for a body corporate. Also, a person found liable shall pay compensation at the order of SEC or Investment & Securities Tribunal (IST) to any aggrieved person who suffers a loss as a result of the contravention.
In May 2024, Abbey Mortgage Bank Plc (the Bank) was cleared of allegations regarding insider trading during a closed period, as initially stated in the NGX X-Compliance Report. Following a thorough review of the circumstances surrounding the allegation, and considering the explanations provided by the Bank, the NGX reached a decision not to enforce any penalties. The Bank was however directed to attend a compliance training session, intended to re-enforce adherence to the regulatory standards and corporate governance best practices.
Stakeholders are strongly advised to avoid using or sharing material, non-public price-sensitive information even if such information is obtained accidentally, to uphold integrity and trust in the capital market.
To further uphold fair practices and discourage the use of non-public and material information for personal gains, Directors, employees and persons closely related to them, as well as all Insiders, are mandated to notify the Company in writing, through the Company Secretary of the occurrence of all transactions conducted on their own account in the shares of the Company on the day such transaction occurs. In same vein, the Company is mandated to maintain a record of such transactions and provide same to the NGX within two (2) business days of the NGX making a request in that regard.