Critical Appraisal of The Concept of Insider Trading Under Nigerian Company Law
Critical Appraisal of The Concept of Insider Trading Under Nigerian Company Law
Critical Appraisal of The Concept of Insider Trading Under Nigerian Company Law
Abstract
Chapter One
1.0 Introduction
As the business world continues to
expand in global markets, trading of
shares, bonds, derivatives and other
instruments continue to increase. One
corm of trading that has received
considerable interest in recent years is
insider trading. Insider trading occurs
when individuals with potential access to
non-public information about a
corporation buy or sell stock of that
corporation. When the information is
material and non-public, such trading is
illegal. In these cases, individuals are
aware non-public information gained
through the performance of their duties
and thereby are in breach of a fiduciary
or other position of trust. However, if the
trading is done in a manner that does not
take advantage of non-public
information, it is often permissible. For
example, if a director of a company
knows that the company is crashing due
to some unsuccessful business risks, and
then sells his shares knowing that the
board has decided to cut the dividend
and that this will be announced in a few
days, he is guilty of insider trading. In a
similar vein, where a director knowing
that diamond or has been discovered on
the company’s land, without the fat
being known to the public, buys more
shares in anticipation of a considerably
high rise in the value of shares, he is also
guilty of insider trading. It is clear that
the use of such “insider” information by
an insider to benefit himself at the
expense of others, not so well places, is
unfair. The director, as we have seen
earlier, owes a fiduciary duty to the
company, and so if he is allowed to use
his inside knowledge of the affairs of his
company for his personal benefit then a
conflict of interest is inevitable. This is
apart from the unfairness to the
individual shareholders.
1.1 Background
Insider trading is one of the corporate ills
that have existed since the emergence of
the abstract entity known as company.
Incidentally, this corporate evil has
existed unchecked for over a century of
the development of company law. As
noted by Orojo , at common law no clear
prohibition was imposed on the use of
insider information except only in the
case of industrial and trade secrets. In
other respects, the directors or other
officers were free to hold and deal in the
shares of the companies. The lack of
legislative check on the ills of insider
trading was feature of company law in
most jurisdictions including Nigeria until
recently.
2 What is an insider?
sensitive information?
amendment?
Nigeria.
insider trading
in Nigeria.
related company;
related company;
related company;
involved in a professional or
company.
company or member;
company; and
company; and
of those securities.
1.8.2 Trading
The Black’s Law Dictionary simply
defined the term “trading’ thus
1.8.4 Securities
The Black’s Law Dictionary defines
security as collateral given or pledged to
guarantee the fulfillment of an
obligation; especially the assurance that
a creditor will be repaid (usually with
interest) any money or credit entered to a
debtor. An instrument that evidences the
holder’s ownership rights in a firm (e.g a
stock), the holder’s creditor relationship
with a firm or government (e.g; a bond),
or the holder’s other rights (e.g. an
option)
Under the Act the term securities was
elaborately defined thus
Securities means