Screens showing stock prices. Recent insider stock trading violations show the need for market regulators to impose penal sanctions. - Photo tinnhanhchungkhoan.vn

HÀ NỘI – Illegal insider stock trading requires a stronger deterrent from regulatory agencies to stabilise the market sentiment, according to tinnhanhchungkhoan.vn.

Insider stock trading among business leaders has existed for years and been a thorn in the side of investors due to a lack of appropriate punishments.

In the past six months, the State Securities Commission (SSC) has punished several company leaders for violating rules on the transparency of stock trading.

On July 3, the SSC issued a fine worth VNĐ17.5 million (US$752.5) on a member of the board of directors in Cà Mau Water JSC (UPCoM: CMW) for selling the company's shares before the allowed period.

A fine worth VNĐ55 million was imposed on a deputy director of Vinacomin-Water Transport JSC (UPCoM: WTC) as he bought shares without reporting the deal to the SSC and the Hà Nội Stock Exchange (HNX).

Such transactions cause concern as the firms' leaders will have more information than other investors, allowing them to make personal profits.

Some investors are questioning whether insider trading is illegal or not and what lies behind those leaders’ actions.

According to Eiichiro Kawabe, deputy commissioner for international affairs at the Japan Financial Services Association, many company leaders and those with similar benefits learn information earlier than common investors to do non-public deals that bring them profits.

If the market regulator is not sharp enough, such wrongdoings may erode investors’ confidence in the equities market.

Hoàng Văn Cường, commissioner of the National Assembly’s finance and budget committee, said there must be a regulation to deal with such wrongdoings soon to help the equities market develop transparently and healthily.

Experts have suggested illegal insider stock trading must be handled by penal sanctions, not by fines, with the sanctions stated in the Law on Securities, which is being discussed in the National Assembly.

One measure is to force business leaders to clarify why they made illegal insider transactions and to publicise those reasons.

Some analysts and investors have suggested those violating the rules must be fined heavily and be restricted from trading stocks for a period of time.

However the new Law on Securities, which is expected to be passed late this year, doesn’t contain any penal actions for wrongdoings on the market.

The proposed maximum penalty for an individual violation is VNĐ1.5 billion and VNĐ3 billion for an organisational action.

According to Eiichiro Kawabe, information transparency is an important and decisive factor to determine how resources are allocated on the equities market. That requires material information to be provided accurately, fully and be understandable.

If existing punishments are not strict enough to deal with market wrongdoings, investors will lose confidence in the market.

Therefore, it is important to increase sanctions for trading violations. In Japan, penal punishments are used alongside fines to ensure insider trading doesn’t destabilise the market.

In addition, market members and regulators must improve their systems and technologies to discover and prevent illegal insider trading. – VNS