Insider trading

2020 CLD 929 SECURITIES-AND-EXCHANGE-COMMISSION-OF-PAKISTAN Judicial Precedent

Ss. 15A to 15EInsider tradingStandard of proofScope

Standard of proof under Ss. 15A to 15E is based on the principles of preponderance of evidence.

2019 CLD 531 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 127, 128, 129 & 130Insider tradingSuspicious transactions"Front-running" and "tailgating" practices

Meaning, scope and nature of such transactions, explained.

2018 PLD 114 SUPREME-COURT Judicial Precedent

Arts. 62(1)(f) & 184(3)Securities and Exchange Ordinance (XVII of 1969), Ss. 15-A, 15-B & 15-EQualification for membership of ParliamentInsider trading

Constitutional petition before the Supreme Court seeking disqualification of member of Parliament (respondent) for indulging in insider trading

Respondent was never proceeded against under the relevant provisions, adjudged or determined to be guilty of insider trading; prosecuted, convicted or punished, rather it seemed that a settlement between the respondent and the Securities and Exchange Commission of Pakistan was effected to save the respondent, whereby the matter was closed by the latter against the former

Attributing dishonesty to the respondent on account of insider trading, after the lapse of around a decade, could not be made the ground for his disqualification under Art. 62(1)(f) of the Constitution

Rule of past and closed transactions would also come into play in the present case.

2017 CLD 443 SECURITIES-AND-EXCHANGE-COMMISSION-OF-PAKISTAN Judicial Precedent

Ss. 15-A to 15-EBrokers and Agents Registration Rules, 2001, R.8, Third scheduleSecurities and Exchange Commission of Pakistan Act (XLII of 1997), S.33Insider Trading

Broker company purchased shares on behalf of a company, in its proprietary account before the opening of trading account/CDC sub-account and started buying of shares on behalf of said company, two days prior to receipt of payment

Show-cause notice was issued to the broker company for alleged involvement in insider trading and violation of the Code of Conduct provided in Third Schedule of the Brokers and Agents Registration Rules 2001

Alleged insider trading was not established, and broker company was exonerated, but penalty was imposed on account of procedural lapses in compliance of Third Schedule of the Brokers and Agents Registration Rules, 2001

Act of broker company to purchase shares of, in its own account was solely to facilitate the said company and broker company had not drawn any consideration/gain while transferring the shares to the company's sub-account

Violation of Brokers and Agents Registration Rules, 2001, though had been established, but taking lenient view, penalty imposed on the broker company was converted into stern warning, that in case of similar non-compliance in future, strict action would be taken against the broker company.

2014 CLD 1210 SECURITIES-AND-EXCHANGE-COMMISSION-OF-PAKISTAN Judicial Precedent

S. 15EInsider Trading

Respondent, traded extensively in shares of a number of companies, and his trading was conducted through a brokerage company, which was holding Broker/Trading Right Entitlement Certificate of Stock Exchange

Trading of the respondent was also carried out significantly in co-relation with the trading of the Foreign clients of another broker

Information obtained from said other brokerage company, had revealed that another person, the operator in said other brokerage company was responsible for execution of the orders placed by Foreign clients

Said person being an insider had passed on/disclosed the inside information relating to trading orders received from foreign clients to the respondent

Based on said inside information, respondent indulged in insider trading

Said other person was an insider by virtue of his position and employment at the other brokerage company, whereas he gave material non-public information relating to trading orders of foreign clients to the respondent

Respondent, indulged in 'insider trading' in his account on the basis of the inside information, and earned significant amount of profit

In view of the apologetic submission of his offence, the extent of remorse experienced by him, personal circumstances of the respondent; and the hardships bore by his family, due consideration to the prayer of the respondent had been made; and a lenient view in the matter had been taken

Commission, in exercise of powers under S.15 E(1) of Securities and Exchange Ordinance, 1965, imposed on respondent a fine of Rs.1,100,000 (Eleven Lakh only) for contravention of subsection (1) of S.15-A of Securities and Exchange Ordinance, 1969

Commission had also taken enforcement action against said informer and imposed fine on him for passing on/disclosing inside information pertaining to trading orders of foreign clients to the respondent under S.15-E of Securities Exchange Ordinance, 1969.

2013 CLD 1637 SECURITIES-AND-EXCHANGE-COMMISSION-OF-PAKISTAN Judicial Precedent

Ss. 15-A & 15-EInsider tradingPerson who was the Chief Executive Officer of company, was also a member of Board of Directors of a Corporation

Said person was authorized to operate the trading account on behalf of the company and by virtue of his position at both the enterprises the company and Corporation were in possession of material information regarding the financial and operation condition of the Corporation

Open ended decision taken by Board of Directors of the company to sell shares of Corporation for portfolio reallocation, could not substitute the sale of shares by the company, just prior to announcement of financial results

Said person fell under the definition of 'Insider' as he was serving as Chief Executive of the company and non-executive Director of the Corporation

Directors of any company, were first source of insider information, however, the person in possession of insider and confidential information, must take proper care and caution, so that confidentiality was neither compromised, nor breached

Person in possession of inside information would hold that information as a trust

In the present case, it was evident that being on the Board of Directors of the Corporation, said person was directly privy to the inside information regarding worsening operational condition as well as weakening financial position of the Corporation

Considering the financial position of the Corporation the company sold shares of the Corporation aggressively

Three components of S.15 of Securities and Exchange Ordinance, 1969 i.e. insider, inside information and inside trading were established to be present in the case

Said person was the insider, determining financial and operating position of the Corporation, and financial result, was inside information, and selling of shares of the Corporation by the company on basis of insider information just days before the announcement of financial result of the Corporation, constituted inside trading

Said person was privy to the inside information by virtue of his position at the Corporation, disclosed inside information to the company on the basis of which company sold the shares of the corporation; before dissemination of material non-public information

Contravention of S.15-A(1) of Securities and Exchange Ordinance, 1969, stood established against the company

Commission, in exercise of powers under S.15-E of Securities and Exchange Ordinance, 1969, directed the company to deposit a fine of Rupees Two Million only, in circumstances.

2013 CLD 1150 SECURITIES-AND-EXCHANGE-COMMISSION-OF-PAKISTAN Judicial Precedent

Ss. 15-A & 15-EInsider trading

Provident Fund Trust Company, a private limited company managed the funds of the employees of Pakistan Petroleum Limited

Board of trustees of the 'Fund' had prior information regarding the financial results of the 'Fund' by virtue of their positions in the 'Fund'

Information, regarding financial results of the 'Fund' was inside information as same was not available publically before its dissemination

Board of trustees of the 'Fund' using the material information regarding financial results of the 'Fund', disclosed by its Director traded on behalf of the 'Fund' by purchasing the shares of the 'Fund' just before the announcement of its financial results

Directors of the 'Fund' found engaged in "insider trading" by dealing with the shares of 'Fund' on the basis of inside information in violation of S.15-A of Securities and Exchange Ordinance, 1969

Company was liable for the penalty as defined in the S.15-E of the Ordinance

Commission, in exercise of powers under S.15-E(1) of Securities and Exchange Ordinance, 1969, imposed penalty of rupees one million on the company for contravention of S.15-A of the Ordinance by trading in the shares of the 'Fund' on the basis of inside information

Directors of the company were directed to ensure that the operations of the 'Fund' were closely monitored by them and no trading was done on the basis of inside information in contravention of S.15-A of Securities and Exchange Ordinance, 1969.

2013 CLD 1150 SECURITIES-AND-EXCHANGE-COMMISSION-OF-PAKISTAN Judicial Precedent

Ss. 15-A & 15-EInsider trading

Provident Fund Trust Company, a private limited company managed the funds of the employees of Pakistan Petroleum Limited

Board of trustees of the 'Fund' had prior information regarding the financial results of the 'Fund' by virtue of their positions in the 'Fund'

Information, regarding financial results of the 'Fund' was inside information as same was not available publically before its dissemination

Board of trustees of the 'Fund' using the material information regarding financial results of the 'Fund', disclosed by its Director traded on behalf of the 'Fund' by purchasing the shares of the 'Fund' just before the announcement of its financial results

Directors of the 'Fund' found engaged in "insider trading" by dealing with the shares of 'Fund' on the basis of inside information in violation of S.15-A of Securities and Exchange Ordinance, 1969

Company was liable for the penalty as defined in the S.15-E of the Ordinance

Commission, in exercise of powers under S.15-E(1) of Securities and Exchange Ordinance, 1969, imposed penalty of rupees one million on the company for contravention of S.15-A of the Ordinance by trading in the shares of the 'Fund' on the basis of inside information

Directors of the company were directed to ensure that the operations of the 'Fund' were closely monitored by them and no trading was done on the basis of inside information in contravention of S.15-A of Securities and Exchange Ordinance, 1969.

2013 CLD 158 SECURITIES-AND-EXCHANGE-COMMISSION-OF-PAKISTAN Judicial Precedent

S. 15-EInsider Trading

While reviewing the trading data of Modarba and Bank during the review period, it was noted that trading by the respondent in certain illiquid scrips through his different trading accounts, was in correlation with the trading of Modarba and the Bank; it was noted that in majority of the instances, hebought the scrip prior to the purchase by Modarba and the Bank; and subsequently sold all or major portion of the same to the Modarba and the Bank and the rest in the market at higher price, around the same time Modarba and the Bank started buying the shares, which resulted in considerable gain to him

During the period from July 1, 2008 till January 31, 2011, he undertook bulk trading activities in 147 scrips

Out of said 147 scrips traded by him during the period, his trading in only 22 scrips as given in show-cause notice, matched with either Modarba or the Bank

Record established that during the Review Period, he was an active investor/trader in the market

Data provided by him regarding his trading during the review period corresponded to the data available with the Commission

Neither in written reply nor during the course of hearing, he himself or his representative had denied execution of any of the transactions mentioned in show-cause notice

Contention of the respondent that due to his bulk trading, a minor percentage of his trading matched with Modarba and the Bank, which was insignificant, immaterial and completely accidental, and unintentional, was not true

No documentary evidence was provided, which could prove that the payments as mentioned in the show-cause notice, were made in connection with the business mentioned in Partnership Deed

Mere presentation of the Partnership Deed and payment through Banking Channel, did not prove that payments made, were the result of any other business transaction

Person who was Equity Investment Portfolio Manager at Modarba and was also looking after Investment Portfolio of the Bank, by virtue of his position, was in possession of material inside information regarding the investment decisions of Modarba and the Bank

Respondent was held guilty of contravention of S.15-(A)(1) and in exercise of the powers under S.15-E of Securities and Exchange Ordinance, 1969, respondent was directed to deposit a fine of Rs.4.500 million (Rupees Four million Five Hundred Thousands only).

2012 CLD 1262 SECURITIES-AND-EXCHANGE-COMMISSION-OF-PAKISTAN Judicial Precedent

S. 15(E)Insider trading

Scrutiny and examination of trading data of Automated Trading System of Stock Exchange, revealed that funds under the management of the company, traded heavily through its funds

Different funds administered by the company made a cumulative gain on sale of shares

Company, in response to notice, submitted its reply, wherein it was contended that company had no inside information regarding the sale of shares

Company had contended that the subject off market deal was offered by another company; and that it had no information regarding the identity of the seller

Said contention appeared to have no rational basis, as the structuring of such outsized deals usually required substantial time

Trading in question did not meet the standards of trading practices that was expected of a major participant in the market which had created doubts and suspicions and resulted in initiation of proceedings by the Commission

Transactions were structured in a way which had given impression of Insider dealing

Such dubious trading patterns and timing of trades, could lead to believe by the Regulator as interference in the fair and proper functioning of the market

Company was a well-reputed and prestigious Asset Management Company of the country; and high standards of conduct and compliance was expected of it

Company was reproached and censured for conduct, which did not commensurate with high standards of comfortment expected of the company

Company was also warned to abstain from trading in such questionable manner in future, which created suspicions and doubts of insider dealing

Management of the company was directed to ensure compliance of the laws in letter and spirit.