Proposed insider ban ‘unnecessary’

Press, 24 September 1988, Page 34

Proposed insider ban ‘unnecessary’

PA Auckland Proposed legislation that would ban insider trading is unnecessary and could make it more profitable than in the past, a major sharebroking firm says. There was no evidence of significant insider trading on the New Zealand market, Mr Bryce Wilkinson, research director for Jarden Morgan New Zealand, Ltd, told a select committee examining the Securities Law Reform Bill. The bill would introduce civil laws against insider trading, allowing companies and individuals to sue insiders for losses resulting from the use of inside information. -“I have not seen evidence that insider trading is worse than at any other time in the last 30 years,” Mr Wilkinson said. There had been much publicity given to problems in the sharemarket

and business. These included “creative accounting,” inadequate disclosure of major transactions, inadequate protection for minority shareholders and claims of fraudulent and unethical management practices. “It is important to note, in the context of this bill, that none of these concerns are " necessarily directly concerned with insider trading,” Mr Wilkinson said in his written submission to the committee. Perversely, the legislation could have the effect of making insider trading more worthwhile, he said. It could inhibit the flow of information between companies, analysts and investors about issues which were too sensitive to talk about publicly. This would include dispelling rumours, foreshadowing redundancies and providing other in-

formation it would want investors, but not competitors, to know about. In confidence, a company would often give investors information of a commercial nature about its business strategy to encourage • investment while trying to prevent competitors from finding out what it was doing, Mr Wilkinson said. The legislation could significantly impair the “subtle communication flows” between the company and investors because the company could be accused of providing price-sensitive or inside information. The result could be a poorly informed capital market leading to discrepancies between share prices and the real value of a company. This could mislead investors and result in inferior investment decisions, which would hurt the whole economy, he said.