Insider trading

The Act was promulgated in 1998 and took effect in January 1999, when the Financial Services Board took over responsibility for investigating insider trading matters.

The Act was innovative in the introduction of both the criminal sanction and a civil sanction.

It has now been just over five years since the introduction of the Insider Trading Act and, in order to gauge the impact that the new legislation had on the South African financial markets, the Insider Trading Directorate (ITD) commissioned G:enesis to conduct market research.

The impact of the new anti-insider trading regime was measured indirectly through a survey, and by tracking investigative activity.

The respondents that participated in the survey included actively traded listed companies, member firms of the JSE, asset management firms, corporate finance firms, audit firms and law firms.

The overall conclusions are that the new regime has changed prevailing attitudes to insider trading, resulted in new policies and approaches among listed corporates and their advisors, and - according to most market participants - led to a sharp reduction in the perceived incidence of insider trading.

• Among the findings of the survey:
  Market participants have become more aware of insider trading rules and regulations (according to 93% of respondents).
• Insider trading has become markedly less acceptable (according to 80% of respondents).
• Education at listed companies has increased (according to 82% of listed companies).
• 77% of traders and asset managers viewed the insider trading regime as having been either very successful or successful in reducing insider trading.
• The JSE's insider trading booklet has been widely read (54% of respondents had read it).
• The majority of listed companies have implemented insider trading policies (59% of listed companies).

In short, public enforcement of the legislation has contributed to a change in attitudes about the acceptability of insider trading.

This, in turn, has dramatically raised the costs of being associated with insider trading: companies suffer reputational loss, reflected in the buying decisions of institutions; and individuals find their career prospects diminished along with their reputations.