Insiders’ market transactions

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EMETERIO SD. PEREZ

WHY do insiders who may be executives, independent or regular members of the board, unload their holdings of common shares in listed companies that they manage?

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The question could be a puzzle to public investors who could not ask the concerned insiders. Neither could they expect an answer from the Securities and Exchange Commission (SEC), thinking that the five-person commission would not listen to them.

How come certain members of the board of listed companies and other insiders are allowed to trade their holdings? Why does the SEC tolerate such trade?

These insider trades may not fall within the definition of insider trading simply because they fully disclose their transactions that are posted on the website of the Philippine Stock Exchange (PSE). Nevertheless, their buy-and-sell orders could either push or pull down a stock’s price.

What if public investors suspect something fishy behind the erratic price movement of a particular stock? How should they possibly react to such?

More importantly, the posers here should not be what the public should do when they find certain trades suspicious. Instead, it is the SEC’s task to find a way to protect the interest of the public traders. In so doing, the commission would be exercising its regulatory power over the stock market even if the PSE is a self-regulatory organization (SRO).

‘Follow the leader’
Accumulating listed shares may not be a violation of the rules governing the stock market. However, it should not be at the expense of the public who are never privy to anything going on inside the boardroom.

Families who own listed companies are insiders. They nominate both regular and independent directors. Sometimes, as the owners, these families may not care at all about the public stockholders, who are made to appear as the controlling stockholders of the company although they are actually not allowed to elect their own nominees to the board.

Even stockbrokers who hold common shares in listed companies are prohibited from board membership despite their significant holdings. Insiders would argue that conflict of interest bans stockbrokers from getting elected directors. If so, business owners should not have been allowed to nominate and appoint their independent directors.

In the first place, there is no such thing as independent directors because the board does not tolerate independence. The family-nominated directors, to borrow an adage, simply “follow the leader.” Would any of these nominees go against the wishes of the majority?

Insider trades
Try surfing www.edge.pse.com.ph. Among the postings is Form 23-B, which contains “statement of changes in beneficial ownership.”

Form 23-B, however, is not enough to inform the public about the ownership profiles of listed companies. It is up to investors to scrutinize every disclosure posted on the PSE website.

As earlier suggested here, public stockholders have three ownership filings to read to familiarize themselves with the country’s rich, very rich and famous, who are, in short, the owners. These three ownership filings are 1) the list of the top 100 stockholders 2) the public ownership reports, and 3) the general information sheets.

The only problem with some listed companies lies in the identities of the beneficial owners of shares carried by PCD Nominee Corp., which acts only as their record stockholders.

It is up to the public to take the initiative to familiarize themselves with the names of business owners. In so doing, they would be able to monitor the transactions of company insiders, like the members of the board, top and ordinary executives and those they know as being privy to the board.

As traders of listed shares, the public investors also enjoy an “advantage” over insiders. Like stockbrokers, they are also closely watched by the SEC’s monitoring team.

From the public
I received an email from a reader of The Manila Times asking me how he could get rich by investing in listed stocks.

I am sorry to disappoint this reader because I consider myself as a reporter writing about listed stocks based on disclosures. What our readers find from postings on www.edge.portal.com.ph are the same information and data I write about every Monday, Wednesday and Friday. Need I say more?

esdperez@gmail.com

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