NSE tightens surveillance as insider dealings stoke fears on share pricing

By Taofik Salako, Deputy Group Business Editor

Authorities at the Nigerian Stock Exchange (NSE) have tightened surveillance around share transactions by major investors, directors and top management staff of quoted companies to forestall undue influence on share pricing and overall stock market’s efficiency.

The NSE at the weekend issued new directives to stockbroking firms and dealing members to take additional measures to track transactions by insiders.

The new directives came on the heels of increasing insider dealings including direct secondary market purchases by core investors, directors and managing directors of quoted companies.

Under the new directives, stockbroking firms are required to maintain the names and Central Securities Clearing System (CSCS) account details of their clients who are insiders of any company listed on the Exchange.

Also, stockbroking firms are expected to track and disclose share purchases for clients of up to five per cent or more of the share capital of any listed company. Such purchases can be in a single transaction or can be accumulated over multiple transactions.

Besides, stockbroking firms are to submit electronic copy of details of all transactions carried out by insiders including relevant updates and changes where applicable to the Exchange within five business days.

Sources in the know of market’s undercurrents said the “subtle reminder” and new directives might not be unconnected with findings of the inspection units of the Exchange.

Sources said with several companies with over concentration of shares in the hands of major investors in breach of the free float rules of the Exchange, stringent monitoring of insiders dealings becomes more imperative to avoid undue influence and market abuses.

Sources noted that there has been high frequency of insider dealings, especially in tranches below the five per cent mandatory requirement, which could lead to under disclosure without the additional directives on accumulation of the tranches.

Trading records showed that recent insider dealings included several large and mid cap companies, most of which rank among the most active stocks at the Exchange. These include Dangote Cement, Nestle Nigeria, Flour Mills of Nigeria, Fidelity Bank, FBN Holdings and Vitafoam Nigeria.

The NSE stated that the additional directives were “in a bid to enhance insider disclosure and to maintain a transparent, fair and orderly market”.

The Exchange also reminded dealers and stockbrokers of many provisions which mandate them to make full disclosures on their operations and to share every specifically designated, important information with the Exchange.

According to extant rules at the Exchange, every dealer and stockbroker is required to deal with The Exchange in an open and cooperative manner, and shall disclose any matter relating to the operations of the firm on which the Exchange would reasonably expect notice. This obligation shall be in addition to all financial disclosures to the Exchange.

Also, dealers and stockbrokers are obligated to disclose to the Exchange any share purchases for a client which is five per-cent and above of the share capital of the company.

Section 315 of the Investments and Securities Act, No. 29, 2007 (ISA), describes an insider as

any person who is or is connected with the company in one or more capacities as a director of the company or a related company; an officer of the company or a related company; an employer of the company or a related company; an employee of the company, involved in a professional or business relationship to the company; any shareholder of the company who owns five per cent or more of any class of securities or any person who is or can be deemed to have any relationship with the company or member and members of audit committee of a company.

The section also included insiders as any of the persons listed above who by virtue of having been connected with any such person or connected with the company in any other way, possesses unpublished price sensitive information in relation to the securities of the company, and any reference to unpublished price sensitive information in relation to any securities of a company is a reference to information which relates to specific matters relating or of concern, directly or indirectly, to that company, that is, is not of a general nature relating or of concern to that company; and is not generally known to those persons who are accustomed to or would be likely to deal in those securities but which would, if it were generally known to them be likely materially to affect the price of those securities.

Also, Rule 400(3) of the SEC Consolidated Rules, 2013 and the Listing Requirements: Section B – Definitions of the Rulebook of the Exchange, 2015 describe an insider as an individual who is connected with the company during the preceding six months in one of the capacities as a director of the company or a related company, an officer of the company or a related company, an employee of the company or a related company, a person involved in a professional or business relationship with the company as above, a shareholder who owns five per cent or more of any class of securities or any person who can be deemed to be an agent of any of the above listed persons and members of the audit committee.

Rule 400(3) of the SEC Consolidated Rules, 2013 and the Listing Requirements: Section B – Definitions of the Rulebook of the Exchange, 2015 also include insider as any person who by virtue of having been connected with the company as mentioned above and has obtained unpublished price sensitive information in relation to the securities of the company.