Towards Achieving an Effective Insider Trading Regulation in Nigeria: a Comparative Study
Insider trading, no doubt is an economic problem ravaging the Nigerian market. It is therefore not surprising that the financial sector had to go through the process of mergers and acquisition mandated by the Central Bank of Nigeria as one of the corrective measures. Insider trading coupled with weak corporate governance was cited as the major factor crippling this sector.Various legislations have been passed over the years to curtail the practice with little or no changes. Investors have continuously suffered huge losses attributable to insider trading. A critical appraisal of the laws prohibiting insider trading showed that, these laws have not only failed to effectively tackle the practice of insider trading in Nigeria,
there is a dearth of cases on insider trading in Nigeria. For further reading see Abubakar Garba, ‘Impediments to Effective Enforcement of Insider Trading Regulations in Nigeria’ (2013) No. 1, Opinion Vol. 3, Ikpefan and Ojeka S.A, ‘Corporate Governance as a Tool for Curbing Bank Distress in Nigeria Deposit Money Banks: Empirical Evidence’, Research Journal of Finance and Accounting, (2013), Vol.4, No.13.Beny, Laura N. ‘Insider Trading Laws and Stock Markets Around the World: An Empirical Contribution to the Theoretical Law and Economics Debate’ (2007) No 2. J. Corp. L. 32, 237.
Despite the fact that insider trading gained international recognition from the 17th century, the public perception of insider trading did not change immediately. It was still regarded as part of the ‘perks’ of being an executive to have an advantage over other investors through information obtained from either being an insider or from other insiders which may inevitably influence any financial decision made. United States (USA) is the first jurisdiction to commence the prohibition of insider trading, before other countries like United Kingdom, Japan and China followed suit. Securities and Exchange Commission being the regulator created under the Security Exchange Act 1934 was granted administrative, enforcement and prosecuting power against insiders. The insider trading has been described by the U.S Supreme court as fraudulent by stating that ‘a corporate director who bought a company’s stock when he knew it was about to jump up in price committed fraud by buying while not disclosing his inside information’. For further reading see Dante Figueroa, ‘Insider Trading and Other Securities Frauds in the United States: Lessons for Chile’ Michigan Journal of Private Equity & Venture Capital Law, 2014, Vol. 3:168, Oliver August, ‘Insider Dealing Returns Thanks to Merger Mania’, The Times, (17 August 1998) Business Section.
U.K on the other hand promulgated the 2000 (now 2010 amended) Financial Services and Markets Act, because of the little success recorded under the 1993 Criminal Justice Act by virtue of the standard of proof required in prosecuting insiders is beyond reasonable doubt which might be difficult for the regulators to prove.. Presently UK regulates insider trading through the combined use of Part V of the 1993 Act and Part V111 of the FSMA 2010, whilst the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) are the regulators in charge of regulating the financial market in UK and instituting actions against insiders. See James Quinn, ‘Britain Overtakes US as Top Financial Centre’, The Telegraph (October 8, 2009).
Nigeria in following international trends set particularly by USA also enacted the Investment and Securities Act 2007 to regulate insider trading. The presence of this law has neither deterred insiders nor curbed insider trading. No single conviction has been recorded since its introduction eight years ago, despite the fact that the 2007 Act is not the first act (Companies Act 2004) to be implemented bothering on the financial market. The financial crisis of 2008 further exposed the extent to which insider trading has ravaged the financial sector and the fact that the ISA 2007 has not been effective in curbing insider trading. Yet other countries with similar insider trading law have been able to kick insider trading to the curbs. Insider trading and bad corporate governance continued to resonate as part of the reasons for the 2008 crisis that caused the failures and near collapse of some of the banks that was eventually bailed out by the Central Bank of Nigeria. This crisis showed further the ineffectiveness of the insider trading law and the need for change, as one of the means to guarantee continued economic growth. For further reading see Abubakar Garba, ‘Impediments to Effective Enforcement of Insider Trading Regulations in Nigeria’ (2013) No. 1, Opinion Vol. 3
In proffering solutions to the problem of insider trading in Nigeria, a comparative study of the insider trading law of Nigeria with that of UK and USA was done. Based on the problems identified, a review of the existing laws regulating insider trading to include more stringent provisions especially sanctions imposed is recommended. There is also need for regulators to forge closer relationship with other agencies (both local and international) fighting against financial crimes. The scope of power of the regulators also needs to be expanded in order to remove any limitation to performing their duties. The agencies in charge of the Nigeria Stock Market also need to be adequately funded to avoid compromise on the part of its staffs.
This note was contributed by Ifeoluwa Etomilade-Oduola Research Fellow, Nigerian Institute of Advanced Legal Studies Lagos. Contact: firstname.lastname@example.org.
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- ii)Beny, Laura N. ‘Insider Trading Laws and Stock Markets Around the World: An Empirical Contribution to the Theoretical Law and Economics Debate’ (2007) No 2. Corp. L. 32, 237.
iii) Dante Figueroa, ‘Insider Trading and Other Securities Frauds in the United States: Lessons for Chile’ Michigan Journal of Private Equity & Venture Capital Law, 2014, Vol. 3:168.
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