Corporate obligations around news announcements regarding unusual trading activity
High public and media interest in insider trading has prompted Singapore Exchange (SGX) to publish an article covering the expectations on listed companies around news announcements when there is unusual trading activity. Below we republish the article in full.
A listed company is obliged to make timely disclosure of material information. This is fundamental to maintaining a fair, orderly and transparent market. Deciding on the timing for an announcement can be challenging, however, especially if companies are in the midst of negotiations or where matters are in a state of flux. Announcing premature or incomplete information may annoy shareholders while the risk of information leakage increases when announcements are held back.
Companies involved in material discussions obliged to monitor their share trading activity
The Listing Rules allow companies some latitude when it comes to the timing of announcements of material information; in exceptional cases, the company can withhold the material announcement till later. In so doing, the company is obliged to maintain the strictest confidentiality.
During this period, the onus is on the company to keep a close watch on the trading activity of its shares and be prepared to make an immediate announcement if necessary, rather than wait to be queried by SGX. This is particularly crucial when the matter is close to conclusion. For example, if trading activity in its shares suggests a potential leak of the matter under negotiation or discussion, the company must call a trading halt and make the announcement.
If the company is not ready to make the disclosure, it should release a holding statement to explain its position. The company may request a suspension of trading if it is unable to release the material information by the end of the trading halt to allow more time for the matter to be concluded and disclosed via announcement.
It is only when a company’s share trading is unusual and the company does not make a disclosure that could explain trading activities that SGX will find it necessary to query the company to elicit the announcement of any material undisclosed information.
SGX likely to be restrained on communication about ongoing investigations into insider trading
Unusual share trading ahead of announcements may be indicative of market misconduct such as insider trading. Should SGX suspect insider trading, it will take action including obtaining from the company the named list of parties privy to the material announcement, analyzing trades, obtaining information from brokers and referring cases to the Monetary Authority of Singapore.
From time to time, SGX has been asked to confirm whether certain situations are indicative of insider trading and whether investigations are ongoing. Among factors SGX considers when deciding whether to share information, the two key questions it weighs are:
1. Would the information benefit investors in their decisions?
2. Would the revelation jeopardize investigations?
When SGX shares information on, for example, unusual trading activities of certain stocks, it deems that the need for investors to be informed on a timely basis of a possible false market far outweighs the interest of keeping possible investigations confidential. This is our guiding principle in such information sharing.
In the case of suspected insider trading, the material information is in the announcement. Once the announcement is released, the market is informed. We are then likely to refrain from further communication to avoid jeopardizing investigations.
Conclusion
While a company is involved in confidential and material discussions, it must closely monitor the trading of its stock. Any sign that share trading is unusual should be regarded as a serious matter that may call for the company to issue an immediate full announcement, a holding statement or a trading halt.
As for SGX, what information we will or will not share when we monitor share trading is guided by considerations of whether such information would benefit investors in their decisions or put investigations at risk. In cases where the material information has already been disclosed to the market, silence may yield a better overall outcome.
This article first appeared on the Singapore Exchange website.
Tan Boon Gin is chief regulatory officer at Singapore Exchange
