Property of Silliman College of Law
Title
:
Unraveling Curtains: Legal Analysis on the Efficacy of Insider Trading
Prohibition in the Philippines.
Author
:
Toni Marie Perdiguerra
Program
:
Juris Doctor
Copyright
:
February 1, 2013
Abstract
:
The law makes it unlawful for an “insider” to trade securities
based on material nonpublic information about a company that is not
disclosed to the public at the time of trading.
Insider trading is
currently governed by Section 27 of Republic Act No. 8799, otherwise
known as The Securities Regulations Code (SRC).
As an advocate of corporate transparency with an actual
working experience in the corporate sector, the author believes that the
financial market in the country reflects the country’s true economy.
Hence, there is a need to maintain the integrity and investor’s
confidence in the market. The prohibition on insider trading is one of
those measures to ensure the integrity and confidence of the market.
Revisiting the history of Philippine market, a number of
instances do arise that illustrate perfectly how insider trading and
market manipulation can occur in the Philippines. Nevertheless at
present there has been no case decided upon by the Supreme Court
finding a person liable for insider trading.
The focal point of this study is to answer the issue on whether
or not insider trading provision in the Philippine law is sufficient
enough to effectively prosecute insider trading violators. To address
the objective of this study, the author utilizes established securities
laws and related jurisprudence both in the Philippines and in the United
States of America. The study focused on the development of insider
trading prohibition in the Philippines in comparison with the American
securities laws.
This paper is divided into three main parts: evolution,
enforcement, and gaps. The first part will lay down the history of
insider trading regulation in the United States and the Philippines. A
detailed showing of the evolution of insider trading law aims to
facilitate the understanding of the relevance of insider trading law in
Property of Silliman College of Law
maintaining investor’s confidence and integrity of the financial market.
The second part will provide a detailed analysis of insider trading law
in the Philippines and its enforcement. The last part will discuss the
gaps of the law and possible solutions to address such gaps.
In the course of the analysis, the following findings were drawn:
the reason why no violator was yet prosecuted for insider trading lies
in the weak enforcement provisions under the SRC and the lack of
substantive foundation on insider trading. The following factors
explains why there is weak enforcement provisions under the SRC: (1)
Lack of authority by the SEC to initiate civil proceedings; (2)
Inefficiency in the investigation process; (3) Lack of personality of
other investors to initiate action suit; (4) Lack of provision on the
protection of whistle–blowers and the grant of bounty award; (5) Lack
of enabling domestic provision to promote international enforcement
cooperation.
On the other hand, the lack of substantive foundation on insider
trading lies on the following considerations: (1) Absence of provision
to address the possibility of collusion; (2) The existence of the parity
of information exception; (3) Absence of a clear definition of date of
disclosure; (4) Absence of affirmative defenses in instances where the
insider is unaware of the nature of material nonpublic information; (5)
Absence of measures against insider trading as a result of corporate
outsourcing (6) Failure of the IRR to provide a comprehensive
provision on insider trading.
In order to strengthen enforcement provisions and intensify
substantive foundation on insider trading in the Securities Regulation
Code, the following recommendations were developed:
A. Strengthen enforcement provisions in the Securities
Regulation Code
- (1) Expand SEC Authority to File Actions; (2)
Grant SEC Powers of Disgorgement; (3) Improve Investigation and
Surveillance System; (4) Strictly Implement the Statute of Limitations
and Provide Provisions for Tolling Agreements; (5) Provide Authority
to Award Bounties and Grant Whistle-blower Protection; (6) Promote
the Initiation of Class Action Suits; (7) Fostering International
Enforcement Cooperation.
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B. Intensify substantive foundation of insider trading provision
in the Securities Regulation Code – (1) Address the Probability of
Collusion; (2) Remove the Parity of Information Exemption and Move
for the Regulation of Selective Disclosure
; (3) Clear Definition
of the Date of Disclosure and the Date of Execution; (4) Provide
Allowances for Affirmative Defenses; (5) Addressing the New Trend
of Corporate Outsourcing ; (6) Providing Comprehensive provision
on insider trading in the Securities Regulation Code Implementing
Rules and Regulation.