Insiders’ trades: Good hunch or advanced info?

Emeterio Sd. Perez

Emeterio Sd. Perez

A reader of The Manila Times has asked why I have been reporting on the trading practices of company insiders. I explained then that my only intention was—and still is—to inform the public and let them analyze a stock’s performance against either the insider’s acquisition price or selling price.

For instance, Triple Eight Holdings Inc. bought 95,000 shares in RFM Corp. at prices ranging from a high of P5.64 to a low of P5.30.The acquisition price levels translate to an average of P5.58375 per share.

On March 13, RFM closed at P5.90 after hitting a high of P5.94. Computed at the closing price alone, Triple Holdings was ahead by P0.3125 per share, for a paper gain of P29,687.50. This means it scored a high return of 5.353 percent in less than a month on its P554,562.50 investment.

Triple Eight Holdings happened to be one of RFM’s three significant stockholders owned by the Concepcion family.

Incidentally, the company’s board approved the payment of P0.037 per share dividend on Feb 27, a day after Triple Holdings’ acquisition of 17,800 RFM shares in three trades – 3,800 shares at P5.62; 5,000 shares at P5.63; and 9,000 shares at P5.64. RFM’s board set March 13 as the record date for stockholders to avail themselves of the dividend that is payable on April 13.

Here is another illustration of an insider’s trade:

Jose Roderick F. Fernando, vice president for legal and special projects of Nickel Asia Corp., sold 25,000 Nickel shares in five trades: 5,000 Nickel shares at P28.50 and another block of 5,000 shares at P28.65 on March 6; and 15,000 shares of 5,000 shares each in three transactions at P28.55; P28.60; and P28.75 on March 9. The sales reduced his holding in the company to 322,075 shares.

He made good profit from trading the shares because on Friday, Nickel closed at P28, after opening at P27.75 and hitting a high of P28.15.

The individual investor need not worry when he feels he is being left out in the trading of Nickel shares. As of last Friday, there was no posting on the website of the Philippine Stock Exchange that would suggest Fernando knew of any development which could have made him sell some of his holdings in the company.

In the case of RFM, Triple Eight reported its acquisition of RFM shares in a filing posted on the PSE website on March 13, or 14 days after the board approval of the dividend.

In Cityland Development Corp., Romeo R. Ng, a vice president, sold 60,000 shares at P1 each on March 12, leaving him owning 2.088 million shares.

Rarely traded, Cityland has 3.572 billion outstanding shares with par value of P1, the price at which Ng sold 60,000 shares. His trade was the only transaction during the day’s session that put him ahead by three centavos against the stock’s 52-week low of P0.97.

But market investors should not be quickly suspicious of filings of acquisitions that tend to show insiders’ advantage over them. It does not always mean there is a case of insider trading when a stock jumps or falls all of a sudden, involving an insider who is either selling or buying.

Take the case of Thomas T. Mattison. This group director of Manila Water Co. Inc. increased the number of MWC shares he owned to 274,100 shares on Feb. 10 from 241,370 shares. He acquired the additional 32,730 MWC shares at P26 each. At the stock’s close of P27.50, he was ahead that day by P1.50 per share, which would make him richer in paper in his additional acquisition by P49,095.

It would be unjust for anyone to suspect that Mattison made a quick profit unfairly. He or she should examine the filing in which a footnote explains that Mattison bought said MWC shares under the company’s 2014 employee stock ownership plan which has set the price of the stock at P26 per share.

Here is one caution to investors: Insiders buying shares at a discount to the market price may be acceptable. What should not be tolerated is the exercise of stock options by the independent directors of listed companies. Remember, they are not elected but only appointed. As such, they are expected to serve as the public’s conduit between the listed company and non-insiders. Of course, the members of the five-person Securities and Exchange body, being a passive regulatory agency, are not expected to impose the unethical practice they have been tolerating.


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