Saudi CMA warns: Insider trading is a criminal offense

Saudi CMA warns: Insider trading is a criminal offense
Updated 22 November 2015

Saudi CMA warns: Insider trading is a criminal offense

Saudi CMA warns: Insider trading is a criminal offense

RIYADH: The Capital Market Authority (CMA) stresses that the Capital Market Law and its implementing regulations prohibit insider trading on shares of listed companies and consider it a criminal offense.
The Capital Market Law has an entire chapter on manipulation and insider trading. The chapter includes Article 50, which is basically on insider trading. It states: “Any person who obtains, through family, business or contractual relationship, inside information (insider) is prohibited from directly or indirectly trading in the security related to such information, or to disclose such information to another person with the expectation that such person will trade in such security.”
Insider information is defined in the Capital Market Law as the information obtained by the insider and which is not available to the general public, has not been disclosed, and such information is of the type that a normal person would realize that in view of the nature and content of this information, its release and availability would have a material effect on the price or value of a security related to such information, and the insider knows that such information is not generally available and that, if it were available, it would have a material effect on the price or value of such security.
The Article also states: “No person may purchase or sell a security based on information obtained from an insider.”
CMA explained that pursuant to the high order to transfer the jurisdictions of the related parties and committees in relation to the investigation and prosecution of criminal offences to the Bureau of Investigation and Public Prosecution, an agreement was made with the bureau to investigate the violations of Article 50 of the Capital Market Law.
In addition, investigations related to Articles 31 and 49 of the Capital Market Law were also transferred to the Bureau of Investigation and Public Prosecution.
The Market Conduct Regulations issued by CMA has an entire chapter with three Articles, which are 4, 5, and 6 for insider trading. The articles explain the concepts of disclosure and insider trading. They confirm that it is a prohibited activity and a criminal offense.
CMA alerted members of the boards of directors, senior executives, employees of listed companies, in addition to the public, from directly or indirectly trading a security of a company after obtaining insider information through their families, business, or contractual relationship that are not available to the general public and not announced yet.
CMA insures that it will not hesitate to apply penalties on violators of the Capital Market Law and its implementing regulations as well as protect the investors from unfair practices that include cheating, manipulation and fraud or through insider information.
As part of its efforts to protect investors, CMA issued an awareness guidebook that includes several examples for violations to the Capital Market Law and its implementing regulations.
The guidebook gives an example on insider trading when an employee or a board member knows that the company he/she works for is considering an acquisition offer by another company and starts buying shares before the acquisition is announced. He/she might also disclose such information to another person who can benefit from it.
This is an unfair practice as the investor who sold his share would not have sold it if he/she knew about the acquisition information. On the other hand, the other person who obtained the information beforehand would likely benefit from the information and gain unfair profit.
Another example is when an employee or a board member knows that the company he/she works for might lose the contract with one of its major clients. The employee or board member would then sell his/her shares in the company based on his evaluation or prediction that the company would definitely lose this contract. He/she might also disclose this information to someone else that might benefit from it.
Similarly, non-executives who have relations that allow them to know insider information in the company cannot trade based on the information or give it to someone else to trade based on it. All this is considered trading a security based on insider information which is also prohibited as per the Market Conduct Regulations.