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15 January 2016
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Insider traders get a smack on the wrist

Tippatrai Saelawong

Fighting against corruption does not mean only fighting against the embezzlement of public funds or the lack of public governance. It also means fighting against the lack of governance and corruption in the private sector.

This is important because the private sector is pivotal to the economic development of the country. Corruption in the private sector can damage confidence of investors and entrepreneurs and increase the risks and costs of doing business.

Recently Thailand was hit by a scandal in the stock market. On Dec2, the Securities and Exchange Commission (SEC) imposed a fine of 33.4 million baht on four CP ALL top executives for insider trading of Siam Makro.

The case occured in April 2013 during the negotiation phase between CP ALL and the Dutch trading company, SHV Holdings NV, on the takeover deal of Siam Makro. CP ALL offered to pay 787 baht a share for the acquisition of a 64 % equity share in Siam Makro, a premium over the market price at the time.

According to the SEC’s investigation, the four CP ALL executives, which include the chairman and two vice-chairmen, bought Makro shares at a price of approximately 500 baht a share during April 10 to 19, 2013, before the public announcement of the deal from April 22 to 23, 2013. The SEC accused them of exploiting inside information.

In Thailand, insider trading may can lead to penalties of a jail tern not exceeding two years or a fine of up to two times the profit gained, or both. Thailand Development Research Institute president Somkiat Tangkitvanich said the fines imposed by the SEC represent only 1 to 1.25 times of the profit earned from the deal. The regulator did not file criminal charges against the offenders. Have insider traders gotten off as lightly in the past?

Records show during 2011 to 2014, the SEC found about one to four insider trading cases a year. Most wrongdoers faced only financial penalty. In 2014, 13 individuals were fined a total of only 31 million baht. Experienced investors believe this illegal practice is widespread in the Thai stock market as returns of a violation are high while sanctions are mild, making it worth taking the risk.

The SEC law and its enforcement are still not vigorous and thus cannot deter insider traders from gaining huge profit in the Thai stock market. The problems come from two weaknesses.

First, monetary penalties and criminal charges in Thai regulation are still minimal compared to those found in other countries. In the US and Japan anyone caught involved in insider trading 20 years for fines up to five times of the ill-gotten profit.

Second, the SEC’s sanction is not sufficiently clear and transparent to both the investors and the general public. In the past, some insider cases face criminal charges while others do not. Some face stiffer fines than others. This may send a strong signal to insider traders that they may be able to get off with a small fine and avoid criminal sanctions.
It may be time for the SEC to reconsider amending its law to allow more severe criminal punishment and monetary penalties, and making its enforcement decisions more transparent to dissuade future violations.

It should act now before the practice becomes more widespread to the point that it destabilizes the Thai stock market, destroy foreign investors’ confidence and ruin small investors.

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Tippatrai Saelawong is a researcher at Thailand Development Research Institute (TDRI). Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays.

First published: Bangkok Post, December 23, 2015

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Tippatrai Saelawong
Senior Researcher

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