What Is Securities Fraud?
Securities fraud, also referred to as stock or investment fraud, is a type of serious white-collar crime that can be committed in a variety of forms but primarily involves misrepresenting information investors use to make decisions. The perpetrator of the fraud can be an individual, such as a stockbroker, speculator, financial business leader. It can be an organization, such as a brokerage firm, corporation, or investment bank. Individuals might also commit this type of fraud through schemes such as insider trading…Read more
Market Offences/Market Manipulation/Misconduct
A violation of the rules which has considerable market impact and causes harm and disruption to the orderly operation of the market is subject to severe…Read more
Contents:
Learning Objectives
Introduction
Trading in Securities Prohibited Conduct under CMSA
Other Offences Relating to Dealing
Other Offences Relating to False and MisLeading Statements
Other Offences
Summary
Self-Assessment
Learning Objectives
At the end of this topic, you should be able to:
(a) Describe the practice of short selling and outline the circumstances under which it is permitted
(b) Describe the provisions of the securities industry legislation designed to prevent market manipulation
(c) Describe the elements of insider trading
(d) Describe the defences available to people and companies charged with insider trading List and describe other offences.
Introduction
We have looked at two methods of regulating the securities industry: licensing certain persons before they undertake operations within the securities industry and disclosure of information about certain persons’ securities activities. A third method of regulating the industry is by prohibiting certain securities market activities.
The offences relate to both physical acts and the passing on of information as well as (?) false or misleading statements. The relevant laws are as follows:
(a) Capital Markets and Services Act 2007 (CMSA)
(b) Securities Commission Act 1993 (SCA)
(c) Securities Industry (Central Depositories) Act 1991 (SICDA)
(d) Companies Act 2016 (CA).
We examine each of the following areas which are regulated:
(a) Short selling
(b) False trading and market-rigging transactions
(c) Stock market manipulation
(d) False or misleading statements
(e) Fraudulently inducing persons to deal in securities
(f) Use of manipulative and deceptive devices
(g) Dissemination of information about illegal trading
(h) Insider trading
(i) Other offences relating to dealing
(j) Other offences relating to false and misleading statements
(k) Other offences concerning destruction of documents/falsification of records, failure to co-operate with the Securities Commission Malaysia (SC) and the liability of directors/employers.
Trading in Securities: Prohibited Conduct under the CMSA
The following are some of the conducts prohibited under the Capital Markets and Services Act 2007 (CMSA).
Short Selling
Short selling is the practice whereby the seller sells securities which, at the date of the agreement for sale, it does not own but intends to acquire before the delivery date. The seller that engages in short selling is relying on the market price of the securities dropping between the date of the sale contract and the date for delivery under that contract, thus providing a profit. Naturally, short selling is more prevalent in a bear market where the odds of such a decline in price are considerably better than in a bull market.
The danger of short selling from the securities market point of view, is that the seller may be unable to purchase the securities in time for delivery and will therefore default on the contract.
S.98 of the CMSA prohibits a person from selling securities to a purchaser unless at the time of the sale, the person (or his/her agent) has presently exercisable and unconditional right to vest the securities in the purchaser.
The CMSA, however, also sets out a limited number of circumstances in which short selling is permitted. Read s.98 (4) and note these exceptions, particularly in relation to:
(a) Pre-existing contract for purchase conditional only upon payment or receipt of transfer or title documents.
(b) A sale of securities permitted by Bank Negara Malaysia to be transacted in the short-term money market.
(c) Securities as prescribed by the Minister.
(d) Securities of a class designed by Bursa Malaysia Securities Berhad where the sale is made in accordance with the Rules of Bursa Malaysia Securities Berhad.
The last item is the major area of exception to the rule against short selling. From a practical perspective, however, the fixed delivery and settlement trading rules, which require settlement of securities sold within two days of the transaction occurring, restrict the ability to short sell on Bursa Malaysia Securities Berhad as it is still necessary for the seller of the shares to be able to deliver. As a result, regulated short selling as defined in the Rules of Bursa Malaysia Securities Berhad requires that the seller have “prior to the execution of the sale, executed an agreement to borrow the approved securities”. Stock lending is structured so that the borrower acquires a presently exercisable and unconditional right to vest the “borrowed” securities in the purchaser in accordance with the rules relating to delivery and settlement.
Read Appendix 1 and note, in particular, that in order to effect regulated short selling, a Participating Organisation must have established internal guidelines setting out its practices, and must establish and maintain adequate internal control systems to supervise and monitor short selling activities. A regulated short sale must be:
(a) Stipulated in the contract note
(b) Only executed by the Participating Organisation if the tick rule complies with Chapter 7.2.3 of the Bursa Malaysia Securities Berhad Participating Organisations’ Trading Manual as below:
(i) At-Tick Rule — the order price must be at prevailing best ask/selling price or higher
(ii) Uptick Rule — the order price must be higher than the Last Done Price or Reference Price
(c) Only executed through the Automated Trading System CATS) and not permitted to be made by way of direct business
(d) In compliance with Rule 8.29 of the Rules of Bursa Malaysia Securities Berhad relating to delivery and settlement
(e) Reported to Bursa Malaysia Securities Berhad daily in terms of net position.
The following are the types of short selling on securities available on Bursa Malaysia Securities Berhad:
(a) Regulated Short Selling (RSS)
(b) Proprietary Day Trading (PDT)
(c) Intraday Short Selling (IDSS)
(d) Permitted Short Selling (PSS) Penalty
The penalty for short selling is a fine of up to RM5 million or imprisonment for up to 10 years or both.
Cases
PP v. Ahmad Skhri Ramli
Ahmad Skhri was charged on 16 January 2002 with shortselling of 202 lots of AKN Technology shares. On 21 December 2006, he was convicted of the two charges of the same act for abetting PBSN in the short selling of 202 lots of AKN Technology Berhad shares. Ahmad Skhri was fined RM300,000 (12 months’ imprisonment in default). On 4 August 2009, the High Court dismissed Ahmad Shkri’s appeal. Both convictions on the short selling and the respective sentences of fine were upheld. On 24 July 2012, the Court of Appeal dismissed Ahmad Shkri’s appeal and affirmed the High Court’s decision. The conviction on the short selling charges as well as the respective sentences were upheld.
On 24 September 2012, the Court of Appeal dismissed Ahmad Shkri’s application to review the Court of Appeal’s earlier decision and maintained the convictions and sentences.
Source:https://www.sc.com.my
PP v. Lua Yik Hor
Lua Yik Hor, a former dealer’s representative of KAF Seagrott Campbell Sdn Bhd was charged on 22 May 1996 for short selling 960 lots of North Borneo Timbers Berhad (NBT) shares and was sentenced to two years’ imprisonment on each offence, all to run concurrently. Lua is the first
rem isier to be jailed for a securities-related offence.
Lua filed an appeal, which was dismissed by the High Court on 27 February 2009. The SC has maintained that all 30 charges were proper and lawful as there were 30 offences of short selling amounting to 960 lots of NBT shares on that day. Each particular offence was completed when his order to sell matched on the market and at that material time he did not own such shares.
On 23 June 2011, the Court of Appeal, presided by Dato Hasan Lah, Datuk Hj Abdul Malik Hj lshak and Dato Balia Yusof Hj Wahi, heard Lua’s appeal against the High Court’s judgment and dismissed the appeal. Lua was subsequently ordered to start serving his sentence with immediate effect.
Sources: https://www.sc.com.my
Section 175 — False Trading and Market-rigging Transactions
S.175 (1) of the CMSA prohibits a person from creating, causing to be created or doing anything that is calculated to create:
(a) A false or misleading appearance of active trading of
(b) A false or misleading appearance with respect to the market for
(c) A false and misleading appearance of the price of, any securities on a stock market in Malaysia.
S.175 (3) provides that a person shall be deemed to have created a false or misleading appearance of active trading if such person has entered into a transaction where there is no change in the beneficial ownership or where he/she has prearranged the transaction.
A defence available in prosecution of a person for an act referred to in s.175 (4) is for the defendant to establish that the purpose for the act did not include the purpose of creating a false or misleading appearance, and he/she did not act recklessly. For example, if a person makes an offer to purchase securities at a specified price when he/she also made an offer to sell the same number or substantially the same number, at substantially the same price.
Active trading is a function of the prior state of the stock market, the number of shares actively traded versus the trading attributed to the manipulator and the general level of market activity.
S.175 (2) of the CMSA prohibits a person by means of:
(a) Purchase or sale of securities that do not involve a change of ownership, or
(b) Fictitious transactions or devices to maintain, inflate, depress or cause fluctuation in the market price of any securities.
Trading is, of course, one of the most effective ways of ensuring that prices will vary; the more shares that are purchased, the better the chances are of raising the price (all other things being equal). It is not the only way, however, of creating an appearance of active trading.
Note that this section covers actions that are calculated to create the necessary appearance of active trading, i.e. it is not necessary for active trading to have, in fact, occurred. This prohibition appears wide enough to cover all kinds of market-rigging and the distortion of market prices by fictitious sales.
In this context, transactions include unexecuted bids and offers. This is irrespective of whether another person is induced.
Section 176 – Stock Market Manipulation
S.176 (1) of the CMSA prohibits a person from entering into transactions that have or are likely to have the effect of raising, lowering or pegging, fixing, maintaining or stabilising the price of securities for the purposes which may include inducing others to acquire or dispose of the securities of the corporation or related corporation.
A “transaction” includes unexecuted bids and offers. This is irrespective of whether another person is induced.
Section 177 — False or Misleading Statements in Relation to Securities
A person must not make a statement or disseminate information that is false or misleading in a material particular and is likely to induce the sale or purchase of securities by other persons or is likely to have the effect of raising, lowering maintaining or stabilising the market price of
securities if, when he/she makes the statement or disseminates the information:
(a) He/she does not care whether the statement or information is true or false, or
(b) He/she knows or ought to reasonably have known that the statement or information is false or misleading in a material particular.
Section 178 — Fraudulently Inducing Persons to Deal in Securities
It is an offence to induce or to attempt to induce another person to deal in securities by:
(a) Making or publishing any statement, promise or forecast that the
aker knows to be misleading, false or deceptive
(b) Dishonestly concealing material facts
(c) Recklessly making or publishing dishonestly or otherwise any
statement of promise or forecast that is misleading, false or deceptive
(d) Recording or storing in, or by means of any mechanical, electronic or other device information that the maker knows to be false or misleading in a material particular.
Persons subjected to this prohibition include officers of a company in relation to a company prospectus or to a stockbroking company advising clients about an issue or sale of securities.
“False” means that the statement is incorrect. “Misleading” requires one to look at the potential effect of the statement on the hearer. If it is capable of leading an ordinary member of the public into false belief, then it is misleading.
This section extends to promises and forecasts which the maker knows to be misleading, false or deceptive, e.g. a forecast of dividends payable in the future.
Finally, this section extends liability to a situation where a person is not necessarily acting dishonestly. The requirement that the statement be “reckless” is not met by mere negligence, being the failure to take “reasonable care”. The effect of s.178 of the CMSA is, among others, to impose a duty on directors and other persons making statements by way of inducement, to inquire whether the information they have been given is correct and reliable.
Section 179 — Use of Manipulative and Deceptive Devices
It is an offence if, in connection with a sale or purchase of securities, a person directly or indirectly:
(a) Uses any device, scheme, or artifice to defraud
(b) Engages in any act, practice or course of business which operates or will operate as a fraud or deceit
(c) Makes any statement which is untrue, of a material fact or omits to state a material fact necessary to make a statement not misleading in the context in which it was made.
This section extends the circumstances in which the Act applies in respect of materially untrue statements and omissions, and incorporates the common law actions of fraud and deceit.
Cases
Wahid Ali, a director of Aiwanna Manage Assets Sdn Bhd (Aiwanna) was charged on – 10 October 2005 with three counts of omitting to state a material fact, pertaining to the investment of Aiwanna’s client, Eastern Pacific Industrial Corporation Bhd (EPIC), whereby the material fact was necessary to make the statement of accounts issued to EPIC, not misleading.
The High Court had on 14 January 2013 dismissed Wahid All’s appeal against his conviction and sentence imposed by the Sessions Court on 30 June 2009. Wahid Ali had then filed an appeal to the Court of Appeal. On 14 May 2015, the Court of Appeal remitted the case to the High Court for a rehearing of the appeal.
On 27 May 2016, at the rehearing of the appeal, the High Court confirmed the conviction for all three charges. For each charge, he was sentenced to a one-year imprisonment term and a fine of RM1 million (one-year imprisonment term in default of the total RM3 million fine). The imprisonment term was ordered to be served concurrently. The High Court allowed for Wahid Ali’s application to stay the execution of the sentences pending appeal to the Court of Appeal.
Section 181 – Dissemination of Information about Illegal Transactions If a transaction is entered into in contravention of 55.175, 176, 177 and 179 of the CMSA, it is an offence for a person to circulate or disseminate a statement or information indicating that the transaction will affect the price of the securities if that person has entered into the transaction.
Insider Trading
Rationale
The rationale for prohibiting insider trading includes the following
(a) Fairness and transparency in the market place, equal access to information for all market participants
(b) Market integrity
(c) Corporate disclosure and good corporate governance
(d) Prevention of injury to the company, its shareholders and investors.
Those who trade on privileged or price-sensitive information to make quick profits in the market are said to be profiteering at the expense of those who do not have access to the same inside information. Those occupying privileged positions may hoard information or keep it away from
the public because they feel or they know that once the information is made public, it will cause the price of the shares issued by the company to rise or fall. By keeping this information to themselves, they make large profits by buying or selling the stock before its price rises or protect themselves by selling stock before its price falls. If the information was made freely available, then they would not have had the unfair advantage.
In Public Prosecutor v. G. Choudhuty [1981]1 MU 76, the judge said:
“Recently, in the Court of Appeal, (UK) in AG’s Reference (No. 1 of 1988), Lord Lane in a reference to insider dealing stated that gaining an unfair advantage amounts to cheating the other party to the transaction. There can be no doubt that that an offence such as this is serious. Their description with the seemingly innocuous title ‘Insider dealing’ or trading which to a layman may not even suggest an offence vshould be stripped of this artificial veneer and exposed in what Lord Lane likened them to, as plain cheating. But the real gravemen of the offence, lest this be missed, is the abuse of corporate confidence.”
Source: The Malayan Law Journal
CMSA Provisions
There are now two limbs to the prohibition on insider trading. Firstly, any person who possesses “inside information” is prohibited from trading in the relevant securities. Secondly, a person who possesses “inside information” is also prohibited from communicating that information if the insider knows or ought to reasonably know that the other person will or will tend to trade in the relevant security or procure a third party to trade in the relevant security.
Insiders
Insiders include all persons who have in their possession information which is not generally available, which, on becoming generally available, a reasonable person will expect it to have a material effect on the price or value of securities, and knows or ought to reasonably know that the information is not generally available (“inside information”). Such persons may include a member of a director’s family, a body corporate which is associated with that director, or a substantial shareholder. In addition, the definition of an insider under s.188 (1) of the CMSA is now broad enough to include someone who has received information.
Note that ss.190 and 191 extend liability for insider trading:
(a) To a corporation, where an officer has information which came into his/her possession in the course of his/her duties or he/she knows or ought to have known because he/she is an officer
(b) To a corporation, where an officer has information which came into his/her possession in the course of his/her duties as an officer or a related corporation, where:
(i) The officer is an insider
(ii) The officer is involved in the decision to trade in securities or enter into an agreement to trade, procure another person to trade or enter into an agreement to trade or communicate the information, or
(iii) It is reasonable to expect the officer to communicate the information to another officer of the corporation, unless it is proved that the information was not communicated.
(c) To a partner of a partnership where another partner or employee of the partnership possesses information which came into his/her possession in his/her capacity as a partner or employee of the partnership, or knows or ought to reasonably know any matter or thing because the partner or employee is a partner or an employee.
S.190 (3) or 191 (3) provides the following defences:
(a) If the decision to enter into the transaction or agreement was taken on behalf of the corporation or partnership by a person other than the officer, partner or employee in possession of the information
(b) The corporation or partnership had in place arrangements which would reasonably be expected to ensure that the inside information was not communicated to the person making the decision to trade, no advice was given by the insider or the insider would not be involved in the decision to trade
c) The information was not so communicated, no such advice was given and the insider was not involved in the decision to enter into, or be involved in, the transaction or agreement or was not involved in the transaction or agreement.
Information
Information includes:
(a) Matters of supposition and other matters that are sufficiently definite to warrant being made known to the public
(b) Matters relating to the intentions, or likely intentions, of a person
(c) Matters relating to negotiations or proposals with respect to:
(i) Commercial dealings, or
(ii) Dealings in securities
(d) Information relating to the financial performance or corporation
(e) Information that a person proposes to enter into, or has previously entered into one or more transactions or agreements in relation to securities, or has prepared or proposes to issue a statement relating to such securities
(f) Matters relating to the future.
Information Generally Available
S.184 provides that information is generally available if the information has been made known in a manner that will, or will tend to, bring it to the attention of reasonable persons who invest in securities of a kind whose price or value might be affected by the information, and since it was so made known, a reasonable period for it to be disseminated among, and assimilated by, such persons has elapsed. This includes information that consists of deductions or conclusions made or drawn from such information.
Material Effect on Price or Value of Securities
Information that, on becoming generally available, will or will tend to have a material effect on the price or value of securities, refers to such information which will or will tend to, on becoming generally available, influence reasonable persons who invest in securities in deciding whether or not to acquire or dispose of such securities, or enter into an agreement with a view to acquire or dispose of such securities. See s.185.
Reference to “Procure”
For the purpose of this Division and s.187 and s.201 of the CMSA but without limiting the meaning of the term “procure” as provided in this section, if a person incites, induces, encourages or directs an act or omission by another person, the first-mentioned person is taken to procure the act or omission by the other person.
Exceptions
Exceptions to liability for insider trading are contained in ss.192-197 in relation to underwriting and sub-underwriting, transactions carried out under schemes of arrangement, etc. under any written law, corporations with knowledge of its intention, knowledge of an individual’s own intentions or activities, unsolicited transactions by a broker and redemption of units of a unit trust scheme under the buy-back covenant.
Defence
5.198 provides a defence if:
(a) The securities that are the subject of the transaction or agreement or the action of procuring a transaction or an agreement are not securities which are permitted on the stock market of a stock exchange
(b) The court is satisfied that the other party to the transaction or agreement knew, or ought reasonably to have known, of the information before entering into the transaction or agreement
(c) That person acquires or disposes of such securities on such terms and in such circumstances that:
(i) He/she does not obtain any gain or avoid any loss, including unrealised gain or unrealised avoidance of loss in price or value, of the securities, as the case may be, for himself/herself or any other person by reason of the effect that the information is likely to have when it becomes generally available
(ii) the purpose of the acquisition or disposal of the securities does not include any purpose of securing a gain or avoiding a loss, as the case may be, for himself/herself or any other person by reason of the effect that the information is likely to have when it becomes generally available.
When the person communicated information or caused information to be communicated to another person, it shall be a defence:
(i) If the court is satisfied that the information came into possession of the person so communicating the information solely as a result of it being made known in a manner likely to make it generally available, or
(ii) If the court is satisfied that the other party knew of, or ought to reasonably have known, the information before the information was communicated.
Cases
PP vs. Tiong Kiong Choon
Tiong was charged with two counts of insider trading under s.188 (2)(a) of the CMSA on 9 December 2014. He is alleged to have disposed of 6,208,500 APL Industries Berhad (APLI) shares on 26 and 29 October 2007 while in possession of inside information in relation to the audit adjustments proposed by APLI’s auditors which would result in APLI reporting a higher loss for the financial year ended 30 June 2007, as compared to the previously reported unaudited 4th quarter results for the same financial year, and that APLI would be classified as an affected issuer pursuant to the Listing Requirements of Bursa Malaysia Securities Berhad and Practice Note 17/2005.
On 24 November 2017, Tiong was convicted by Sessions Court judge Tuan Zulqarnain bin Hassan and was sentenced to five years’ imprisonment and a fine of RM10 million (two years’ imprisonment in default).
Tiong appealed against the conviction and was granted a stay of execution of the imprisonment sentence by the judge.
Source: https://www.sc.corn.my
Penalties for Contravention
Criminal Sanctions
The penalty for a contravention of the sections discussed earlier is a fine of at least RM1 million and an imprisonment for up to 10 years. See ss.182 and 188(4).
In addition, s.374 provides that a person convicted of the offence discussed above is liable to pay such compensation as may be determined by the court.
Civil Proceedings
S.199 of the CMSA gives the SC or any person who has suffered loss or damage from a contravention of ss.175, 176, 177, 178,179 and 181 the right to bring civil action against the offenders. A case may be brought against the offender even if he/she has not been charged or proven guilty of any charge under criminal law.
S.200 allows the SC, at its discretion, to institute civil proceedings in court against a person who has contravened s.175, 176, 177, 178, 179 and 181, whether or not such person has been charged with an offence with respect to the contravention, or whether or not a contravention has been proved in prosecution.
5.201 (1) provides that a person who suffers loss or damage by reason of or by relying on the conduct of another person who has contravened s.188 may recover the amount of loss or damage by instituting civil proceedings against the other person.
An aggrieved person may, by civil action, recover the difference between:
(a) The price at which the securities were acquired or disposed of or agreed to be acquired or disposed of by the insider or the other person, from the seller or purchaser, and
(b) The price at which the securities would have been likely to have been acquired or disposed of at the time of acquisition or disposal or agreement, as the case may be, if the information had been generally available.
Ss.201 (5) and (6) gives the SC the power to initiate civil action against the insider or any other person involved in the contravention to:
(a) Recover an amount equal to three times the amount being the difference between the price at which the securities were acquired, or agreed to be acquired or disposed of by the insider or other person, and the price at which they would have been likely to have been acquired or disposed of at the time of the acquisition or disposal or agreement as the case may be, if the nformation had been generally available
(b) Claim civil penalty up to the sum of RM1 million.
Other Offences Relating to Dealing
Apart from the offences discussed above, there are several offences which relate to dealing in securities. They have been discussed in previous topics and are, briefly as follows:
(a) Dealing in securities without a licence: s.58(1) of the CMSA
(b) Dealing as principal without so informing client: s.97 of the CMSA
(c) Failing to give priority to client’s orders: s.93 of the CMSA
(d) Duty to maintain secrecy of information relating to depositors’ accounts in the Central Depository System (CDS): s.43 of the SICDA
(e) Fraudulently inducing persons to invest money: s.594 of the CA 2016.
Other Offences Relating to False and Misleading Statements
The following are other offences which relate to false and misleading statements:
(a) False statements made to the SC in connection with an application for the grant, or variation of a licence: s.71 of the CMSA
(a) False reports to the SC, Bursa Malaysia Securities Berhad, Bursa Malaysia Securities Clearing Sdn Bhd with the intent to deceive: s.369 of the CMSA
(b) False or misleading statement to the SC in connection with a proposal in relation to securities required by s.212 and 214 of the CMSA
(c) Furnishing false or misleading information in connection with an application or in purported compliance with the Act: s.49 of the SICDA
(d) False and misleading statements in relation to the nominal or authorised capital of a company, or in returns, reports certificates, balance sheets or other documents required by, or for the purpose of, the Act: s.591 of the CA
(e) False reports made with the intent to deceive: ss. 592 and 593 of the CA
(f) False statement or information in a prospectus: s.246 of the CMSA.
Other Offences
Destruction of Documents/Falsification of Records
The CMSA contains a penalty in relation to the falsification of records by any persons and also a penalty for destroying, concealing or altering records, or sending records of other property out of Malaysia as provided under 5.368 of the CMSA.
Failure to Cooperate with the SC
A person who fails to cooperate with the SC in any of the instances listed below is guilty of an offence:
(a) Failure to appear before an investigating officer or refusal to answer questions put by an investigating officer: 5.134 (5) of the SCA
(b) Failure to produce records on request: s.128 (7)(c) of the SCA
(c) Obstruction or hindrance of the SC’s investigating officer in carrying out an investigation: s.128 (7)(b) of the SCA.
Liability of Directors/Employers
Where a corporation commits an offence, liability extends to directors, chief executive officers, officers or representatives under s.367 of the CMSA, unless:
(a) They prove that the offence was committed without prior consent or connivance
(b) They exercised all such diligence to prevent the commission of the offence as ought to have been exercised.
In addition, a dealer, fund manager or investment adviser is deemed to be liable for a contravention of any of the sections by one of its representatives as provided for under s.367 (3) of the CMSA.
It is also an offence for a person to attempt to commit such offence, abet an offence, or be engaged in a criminal conspiracy to commit any offence: s.370 of the CMSA.
The pi dons to the CMSA and SCA enhance the enforcement powers of the SC and Bursa Malaysia Securities Berhad, the central depository and the recognised clearing house to ensure that the provisions of the laws and rules of these self-regulated organisations can be effectively enforced. The penalties and range of persons to whom the penalties are directed as provided in the Rules of Bursa Malaysia Securities Berhad and clearing house have been increased. The parties required to comply with the relevant rules have been widened to include advisers.
Other Enforcement Actions
Besides instituting criminal and civil proceedings, the SC can also make an application to a court for a range of orders as prescribed under s.360 of the CMSA, as well as under the inherent powers of the court.
In addition to the provisions of the CMSA discussed here, Bursa Malaysia Securities Berhad’s Corporate Disclosure Policy on insider trading states that insiders should not trade on the basis of material information which is not known to the investing public. Moreover, insiders should refrain from trading, even after material information has been released to the press and other media, for a period sufficient to permit thorough public dissemination and evaluation of the information.
In addition, the SC has the powers to compound offences under Parts II, III, VI, VII, X or XIII of the CMSA, namely for breaches of licensing provisions, record keeping provisions and the accounts and audit provisions.
Summary
In this topic, we learned about the various pieces of legislation which regulate the securities industry and prohibit certain activities. We examined practices such as short selling, market-rigging, the creation of false market and insider trading. For completeness, we also looked briefly at some other offences in relation to dealing, false and misleading statements, destruction of documents and falsification of records, failure to cooperate with the SC, and the liability of directors and employers.
The offences discussed carry severe criminal penalties.
Self-Assessment
1. Luna a dealer representative’s has been instructed by her employer ABC Securities Sdn Bhd to buy and sell shares of XYZ Berhad. The purpose of the transaction is to create an appearance of active trading of XYZ Berhad shares. However, there is no change in the beneficial ownership of the shares when the related shares are traded.
Based on the above scenario, which of the following offences has ABC Securities Sdn Bhd committed?
A. Cornering
B. False trading
C. Insider trading
D. Short selling
2. Which of the following conducts would lead to dealer’s representative to be charged for market manipulation by the SC?
A. Selling shares which his/her client does not own at the time of selling.
B. Carrying out transactions in which the dealer’s representative is the buyer and the seller in order to create appearance of active trading on a particular counter on the Bursa Malaysia Securities Berhad
C. Acquiring or disposing securities while in possession of information that is not publicly available.
D. Transacting in the securities of a company that will have or is likely to have the effect of raising lowering or maintaining the price of the company’s securities on Bursa Malaysia Securities Berhad.
3. What is the maximum civil penalty for the offence of insider trading?
A. Recovering of an amount of two times of any profit made or loss avoided by such person.
B. Recovering an amount of four times of any profit made or loss avoided by such person and civil penalty of RM1 million.
C. Recovering an amount of four times of any profit made or loss avoided by such person and civil penalty of RM500,000
D. Recovering an amount of three times of any profit made or loss avoided by such person and civil penalty of RM1 million.