The Nigerian Stock Exchange (NSE) has launched a comprehensive review of its rules to block loopholes being exploited for surreptitious trading in shares by directors and other insiders of quoted companies.
The review, which aims at tightening disclosure requirements for price-sensitive information and insiders’ dealings, includes a specific direction on disclosure of directors’ dealing in their own shares of the company and greater investigative mandate that enables the Exchange to track history of such transactions.
Sources told The Nation at the weekend that the review might not be unconnected with growing concerns over surreptitious trading by directors of banks in their shares, without public filing of such transactions. Some commercial banks had shown considerable transactions on the shareholdings of incumbent directors.
A source said while the proposed amendments build on recent reviews by the Exchange, the immediate trigger appeared to be recent transactions on their shareholdings by directors of banks.
The draft on proposed amendments specifically requires that in case of directors’ dealing in their o shares in the company, or engaging in any purchase of shares of the company, the company shall after being notified of the transaction, immediately, and in any event not later than 24 hours after becoming aware, file the full details of the transaction on the NSE’s Issuers’ Portal. The NSE’s Issuers’ Portal is used for direct dissemination of information by quoted companies to the market.
The company is required to fully disclose transactions on directors’ shares including indirect and indirect shareholdings, the name of the director and or any related entities, as well as the counterparties and the date on which the transaction was effected.
Besides, a quoted company is expected to establish securities trading policy, which among others, mandates all directors, persons discharging managerial responsibility and persons closely connected to them such as wives and children of directors as well as other insiders such as professional advisers and contractors to notify the company through the company secretary of any transaction conducted on their own shareholdings in the company within two business days from the transaction settlement date. When the new rules take effect, the company will also now be required to maintain a record of such transactions.
According to the proposed rules, all quoted companies and other issuers shall keep written and other auditable forms of evidence of all transactions in their securities by their insiders, all information liable to be disclosed to the Exchange under its rules, and retain such records for a period of not less than six years.
The companies will also be expected to make records or information on insiders’ transactions available to the Exchange for inspection from time to time as well as cooperate fully and promptly with all inspections or investigations conducted by the Exchange by responding to all enquiries by the Exchange promptly through sharing of information, documents and details.
Besides, the NSE is considering a wider scope of information that must be disclosed on an immediate basis by a quoted company or any other issuer. As against existing rules that require companies to disclose immediately all information on any material circumstance likely to affect their financial conditions, the proposed amendments widen the scope of immediate disclosure to include “all price-sensitive information”.
The new amendments seek to include financial liquidity issues, restatement of a previously published financial statement, operational or compliance related issues regarding any regulatory infractions resulting in any penalty, monetary or otherwise that may affect the company’s license or operations and litigation and dispute with a material impact such as winding up of the company within the definition of price-sensitive information that must be disclosed on an immediate basis. However, the company must obtain the approval of the Exchange before publishing such information.
The proposed amendments also expand the scope of notification on board of directors’ meeting to include any meeting where interim or audited financials will be considered as well as other price-sensitive information. Such notice must reach the Exchange seven days ahead compared with the existing requirement of 14 days.
Existing designated price-sensitive information include changes in the directorate; death, resignation, dismissal or appointment of a principal officer, change in the accounting year, annual and quarterly reports, new capital raising, mergers and acquisitions and alteration in Memorandum or Articles of Association, profit warnings or a change in the financial forecast or expectation, restructuring exercise or changes in the capital structure, takeover, tender offers, divestments, proposed change in the business model or general character or nature of the business of the company or of the group, major new developments in the company’s sphere of activities including major new products, contract awards and expansion plans;, change in voting control or in beneficial ownership of the securities carrying voting control, items of unusual or non-recurrent nature, and any other information necessary to enable shareholders to appraise the true position of the company and to avoid the establishment of a false market in the shares of the company.