Insider trading is a big concern because it provides the insider with an unfair advantage in the market, prioritizes the insider's interests over those to whom they have a fiduciary obligation, and allows an insider to artificially affect the value of a company's stock.
People who are in the know are not merely sworn to secrecy, they are prohibited by law from profiting from such knowledge by purchasing or selling shares in the company or passing it on to someone else who profited from it.
Securities and Exchange Ordinance of 1969 emphasizes the utmost importance of secrecy maintenance, as it strictly demands that no company except with the permission of the commission may communicate or otherwise disclose any information to a person who is not lawfully entitled to receive it.
For this specific type of breach of secrecy, this law establishes a penalty.
In violation of order 19 or 19A, disclosing any information in order to make a profit through insider trading shall be considered a crime.
Sub (1) violations shall result in imprisonment for a term of up to five years, or a fine of up to five million taka, or both.
Whoever violates this law in which there is another provision that refers to penalties for fraudulent activities which specifies that whoever violates those provisions will be subject to criminal penalties that could include a jail of up to five years, or a fine of up to Tk5 crore, or both will be penalized.
This ordinance gave the commission the power to promulgate rules to aid in the achievement of these goals, which would be implemented via a public announcement in the gazette.
The stock exchanges also received permission from the commission to implement rules in the interests of this ordinance.
The ordinance introduced this because it is essential to examine both the fluctuating stock market bubble and widespread market manipulation, as mandated by this law.
The short-selling of shares is related to pre-purchase sales. Essentially, investors buy and sell shares when the price drops and rises.
When you short sell shares, you will want to do so while believing that the price will fall in the near future, because when the price rises, you can buy back the shares at a lower price.
It is possible that this measure will lead to a temporary imbalance in the price structure, and thus, short selling is prohibited by this law.
So, there is a very high possibility that if the documents disclosed this can be manipulated.
This law says that no officer or director of a listed securities issuer, and no one who has or owns ten percent or more of the securities, can short sell the securities.
Additionally, this action also seeks to prevent insider trading and trading by corporate officers, executives, and major shareholders.
Directors and officers of an issuer of a listed equity security, or any person who is directly or indirectly the beneficiary of 10% or more of such securities, must declare any profit from trading in these securities and turn it over to the issuer within six months.
So the order 19, this ordinance protects the confidentiality of all documents and information.
Confidentiality
It is clearly identified that, here the doctrine of confidentiality/ duty of confidence is followed. Fiduciaries are people who hold relationships of trust with other parties.
A fiduciary duty is a legal requirement that obligates someone to act in someone else's best interests, often financially.
A fiduciary must play a role in the best interest of their principal, who may be referred to as the beneficiary.
If the fiduciary fails to fulfill their fiduciary duties, they will be held accountable for any profit made illegitimately. Typically, beneficiaries can recover damages.
With the reference of Smith v. Van Gorkem, 488 A.2d 858 (1985) A director should challenge everything presented, even if they accept it.
Instead, the director should exercise caution and examine the data critically with a critical eye to protect the corporations' and stockholders' interests.
In Guth v. Loft, Inc., 5 A.2d 503 (Del. 1939), Corporate information held under the duty of confidentiality must be kept confidential and not disclosed to benefit the corporation's directors and officers.
Under Amgen Inc. v. Harris, 577 U.S (2016) explained directors must be honest and forthright in carrying out their duties.
The directors will have to disclose all the facts and circumstances surrounding their decision to the stockholders in certain circumstances.
If we look at section 406, 420, 467, 468, 471 of the Penal code 1860, we will find that there are many punishments for different types of breach of trust.
That clearly indicates that from the beginning the term confidentiality and trust has great impact and all of these terms are executed in this Act in different terms and manner.
In general, if someone commits a criminal breach of trust, he will face at least three years in prison, or he will be fined, or he will be punished with both.
Anyone who dishonestly gets someone else to deliver the property to another person, or to make, alter, or destroy existing valuable security, or anything that can be converted into a valuable security, is subject to a sentence of at least seven years in prison and a fine.
Forgery
Anyone who fashions a document, purporting to be valuable security, will, or an authority to adopt a son, or who claims to confer any person with the ability to create or transfer any valuable security, or to receive the principal, interest, or dividends, or to accept or deliver money, movable property, or valuable security, will be sentenced to imprisonment for life, or imprisonment for ten years, and may also be fined.
If you forge a document to use it to cheat, you can be sentenced to ten years in prison as well as pay a fine.
Forging a document and then fraudulently or dishonestly using it will be punished in the same manner as if the forged document had been created.
So it is clearly indicated that if you are in a position to serve as a trustworthy person, you have to keep the secret; any kind of disclosure can lead to punishment.
Regulatory laws are still considered to be in the early stages; they face numerous loopholes in the laws that allow unscrupulous manipulators to use loopholes to manipulate the stock market.
In Bangladesh, time is of the essence when it comes to security investments.
In order to secure investors' rights, the legislature enacted and issued laws, rules, regulations, and notifications.
There is a critical question here: can these legislations be implemented correctly? Our state legislature drew its securities law from the United States, but failed to put in place an effective mechanism to ensure investors' rights are protected.
While, after all this, it can be concluded that it is questionable whether investors' rights have been implemented under existing laws in our country.
Therefore, in order to help reduce manipulation, the duty of confidentiality must be upheld at all costs, since it is the only way to counteract manipulation.
So, the duty of confidentiality must be followed by the person who is in the position to keep the document secret.
In the above discussion, it can be clearly identified that, in different laws and doctrines, confidentiality and secrecy are discussed as an important part, and in case of any disclosure, a person can be punished in a different term and manner.
Keeping an open secret is sometimes overlooked in our country, so it is high time for the authorities to look after this matter; otherwise, it will be challenging to hold the reins in the future.
The author is a fellow of DLA Piper UK. His expertise is in international commercial law.
