Uniform Dissemination of Price Sensitive Information

Stock market, undoubtedly, is an attractive place especially for investors with small capital. Simultaneously, the market is risky due to frequent price movements of some listed securities. Proper information regarding listed securities helps investors to take a prudent judgment regarding investment. Otherwise, rumors will usurp the bench of ‘information’ and confidence of small investors will be spoiled. Certain information may influence the prices of shares and that’s why, price sensitive information should be disclosed as well as disseminate uniformly so that no one can take any undue advantage with the same. ‘Insiders’ of companies in some cases may use undisclosed price sensitive information as a hidden weapon to achieve unjustified financial gain which must be barriered by statutory sanctions.

According to Rule 2(d) of the Securities & Exchange Commission (Prohibition of Insider Trading) Rules, 1995, ‘price sensitive information’ means information which, if disclosed, may affect the market value of the security concerned. It also includes (a) the report on the financial condition of the company or the basics thereof information; (b) information regarding dividends; (c) decision relating to right share, issue bonus or similar benefits to security holders; (d) the company decides to buy or sell any fixed assets; (e ) information regarding the company's BMRE or new unit installation (f) fundamental changes in the functions of the company (e.g., the production of goods, the formulation of plans, the implementation or the formulation of policies, etc.); The commission by Official Gazette may determine any other information as price sensitive.

An exhaustive list can never be prepared. Even an information which is considered as price-sensitive to one party of a contract may be immaterial to the counterparty. A fund-raising by a company may be treated as sensitive information for an issuer facing liquidity problems and the similar information may be immaterial to the same company in better times.

Hong Kong Exchanges and Clearing, one of the largest exchanges of the world, in 2002 has framed certain guidelines on disclosure of price-sensitive information. Information which is expected to be price-sensitive should be announced promptly after it becomes known to a director or senior management of the issuer. Until an announcement is made, directors of issuers must ensure strict confidentiality. If it is felt that necessary degree of security cannot be maintained or that security may have been breached, an announcement must be made immediately. If price-sensitive information is inadvertently divulged to outside parties or it is believed that such information may have been inadvertently divulged, the issuer must immediately issue an announcement so that the relevant information is disseminated to the market as a whole. Information should be disclosed to the market as a whole and all users of the market have simultaneous access to the same information. It is important that price-sensitive information should not be divulged selectively outside the issuer and its advisers in such a way as to place in a privileged dealing position any person or class or category of persons. Price-sensitive information may include positive and negative information.

The Securities and Exchange Commission by a notification dated 15^th February, 2016 prescribed that every securities issuer shall, within 30 (thirty) minutes of making a decision on any price sensitive information or on the date of receipt of the information, immediately sign it in writing under the signature of its Chairman, CEO or Company Secretary and communicate the same to the Commission and the concerned Stock Exchange(s) by Fax, special messenger and in some cases by courier service. Simultaneously, the company shall ensure immediate publication of such information in two widely circulated dailies (one in Bengali and the other in English) and one online. Such information sent and published by the listed security issuer shall specify the date and time of decision of the Board of Directors of the issuer, or as the case may be, the date of receipt of the information. As soon as the relevant stock exchange receives such information, the information shall be disseminated through its news monitor.

The board of directors of the issuer should hold board meeting involving price sensitive decision either after the trading hour or on a holiday so that the information may be disseminated widely before commencement of next trading hour.

Dhaka Stock Exchange (Listing) Regulations, 2015 suggests that when any unusual market action occurs for a listed security and the action appears to be attributable to a rumor or report or material information that has not been publicly disseminated or any other manipulation, the issuer of the security may be requested by the Exchange to take appropriate corrective action. It may be advisable to halt trading until such action has been taken or for a period the Exchange deems appropriate. The Exchange may suspend trading of any listed securities if it has reasonable ground to believe that all material information required for efficient price discovery of the securities is not available to the public.

In some cases, insiders of company may have access to price sensitive information before its announcement. Some employees may require to work with unpublished price sensitive information due to nature of their job. The company should have a policy limiting the access of employees to price sensitive information and the access may be on a ‘need-to know’ basis. It must be noted that no insider is permitted to disclose any price sensitive information to any outsiders.

Insider trading or business means ‘any buy, sell or transfer of any securities on the basis of price sensitive information’. No insider shall be involved in such trading or assist anyone by providing advice regarding buy, sell or transfer of any securities.

According to Rule 2(e) of the Securities & Exchange Commission (Prohibition of Insider Trading) Rules, 1995, ‘insider’ means any person who is a director, main shareholder, managing agent, banker, auditor, adviser, employee of any company. Any other person may be treated as an insider who has a relation with above person(s) and he has opportunity to know the price sensitive information by virtue of his relationship with the above-mentioned person or with company.

To restrict insider trading / business the Commission made is obligatory that any insider (e.g. sponsor, director, officer or employee of the company listed on the stock exchange, auditor or person involved in the audit, consultant or legal adviser, or beneficial owner) shall not purchase, sale or otherwise transfer of shares of the company in question during the period from two months prior to the date of completion of the annual accounts till the date of final consideration, acceptance or approval by the Board of Directors. Otherwise, the Commission may instruct the company to take possession for a specified period of the shares or stock acquired through the insider business or not to transfer the said security for a specified period, or not to execute such transfer or take consequential action.

Any person contravenes or attempts to contravene or abets the contravention of any provision pertaining to insider trading, shall be punishable with rigorous imprisonment for a term not exceeding five years or with fine not less than Taka Five Hundred Thousand or with both under section 18 of the Securities & Exchange Commission Act, 1993.

If any person, under the said Act of 1993 or rules or regulations- (a) fails to comply with any order or direction; or (b) fails to furnish necessary information; or (c) fails to provide required assistance to the persons conducting any inspection or enquiry; the Commission may, after giving the person an opportunity of hearing, issue warning in writing or impose penalty of an amount not less than taka one hundred thousand; and in case of continuing default, a further sum calculated at the rate of taka ten thousand for every such day of continuing default.

The Commission in a number of cases inflicted exemplary punishment to teach the wrongdoers and to deter insiders from taking any undue advantage of undisclosed price sensitive information. All sort of vigilances must be taken to prevent insider trading. Otherwise, small investors will lose interest in stock market.

Md. Nazrul Islam Khan is an advocate of the Supreme Court of Bangladesh and Head of ‘Corporate Legal Solutions’.

E-mail: nikhan.law.ru@gmail.com