Insiders should disclose trades the minute they're made
By DIANE FRANCIS
The Financial Post
Insider trading charges laid last week against Corel
Corp.'s chairman Michael Cowpland has sparked renewed
controversy over such crimes. As I wrote last week,
suspicious and lucrative trading on Canadian stock
exchanges often occurs prior to many mergers, acquisitions
or sudden turns of event in the life of public companies.
Everyone knows that insider trading goes on and few get
caught. This is unfortunate. But more regulators and more
red tape are certainly not solutions.
There's no way to completely eradicate cheating, but there
is a rule change that would go a long way to mitigate such
behaviour's deleterious effects on stock markets.
The fact is that regulations currently do not live up to the
stock market tenet of "full, fair and timely" disclosure to all
shareholders.
Right now, rules require "insiders" to disclose their trades
within 10 days after the month in which the transaction
occurs. That means the public does not know what they
have done for as long as 40 days.
That's a glacial reporting time frame. But players say it's
necessary because right now there are insider trading forms
and legal advisors involved. Such red tape was cited when I
conducted a survey last year among a few big shots who
had filed late without consequences. Tardiness is not
unusual.
But such a lag gives any cheater an enormous head start
over other shareholders or the public markets if he or she
has secret information that, when announced, will affect
stock prices. That's not "timely" disclosure, in my opinion.
Current laws are out of date, given the new reality of
instant, electronic information available to ordinary investors
with a flick of a switch.
Timely disclosure should mean immediate disclosure.
Insiders, and/or their brokers, should disclose trades the
minute they make them so that everyone knows about them
in a timely fashion. After all, the technology exists and so do
the precedents for such "real-time" rules.
All that has to happen is if an insider picks up the phone to
make a trade, his broker can easily code it an insider trade
with the name attached for the market to see.
Other "specialized" forms of trading are earmarked such
as so-called "pro" accounts involving trades done on behalf
of a broker or brokerage firm. Besides that, the brokerage
firm doing the trade is also noted by code number for all the
market and public and regulators to see.
Both inscriptions are immediate in view of the importance
to the market of knowing who is trading what and for how
much. For instance, "pro" accounts are important so that
firms and brokers cannot get away with dumping stock they
are recommending clients purchase and vice versa. The
brokerage firm's participation in trading is also important for
market players to know so that firms doing underwritings
cannot get away with dumping stock they are
recommending the public buy and vice versa.
So precedents exist for immediate, real-time disclosure.
Then there's the issue of disclosure of "material facts"
themselves. Such information, once recognized as such,
must be immediately released by a publicly listed
corporation. Companies are not allowed to withhold
releasing earnings, extraordinary losses or events or
catastrophes until the 10th day of the month following the
material fact.
If it's important to immediately release material facts,
which is indisputably the case, then it's equally important to
immediately release insiders' trades that are telltale
transactions that markets are entitled to know about.
On top of all that, there's no excuse for the current
disclosure delay. We live in an era when billions of dollars
can be electronically transferred across multiple borders
within nano-seconds.
I would hope public policymakers in this country consider
reforming insider trading rules.
At the moment, the public is not given the information in as
timely a fashion as technology will permit or fairness would
dictate.
canoe.ca
She must have tripped across the thread -g- |
