The Capital Markets Authority Act, CAP 485A, Laws of Kenya (the “Act”) defines an “insider as any person who is or was connected with a company, or is deemed to have been connected with a company and who is reasonably expected to have access, by virtue of such connection, to unpublished information which, if made generally available, would be likely to materially affect the price or value of the securities of the company, or who has received or has had access to such unpublished information. On the other hand, Black’s Law Dictionary 11th Edition defines “trading” as the business of buying and selling commodities and securities. Therefore, “Insider Trading” can be defined as the use of non-public, unpublished information, price sensitive information which, if made generally available, would be likely to materially affect the price or value of the securities. Price-sensitive information can be defined as information that if used would have a significant effect on the price of the securities.
Insider Trading is designated as a criminal offence in Section 32 (A) of the Act. This Section identifies three (3) categories of offences relating to Insider Trading which can be summarized as; (a) the dealing offence; (b) the communicating offence; and (c) the disclosure offence. The Capital Markets Authority is the main security market regulator in Kenya and works in collaboration with the Office of the Director of Public Prosecution to prosecute the offences envisaged under Section 32 (A). This brief write-up shall discuss the above offences and the elements necessary to prove the same.
The “dealing” offence
Section 32 (A) of the Act provides;
- No insider shall:-
(a) either on his own behalf or on behalf of any other person, deal in securities of a company listed on any stock exchange or otherwise publicly offered on the basis of any unpublished price sensitive information; or
Section 32 (A) of the Act has to be read together with Section 2, which defines the word insider. It follows, in our opinion, that the elements encompassing the dealing offence are; that a person must commit the office; the person must have the information; the person must “deal” in securities; the securities in which the person deals must be listed on a stock exchange; and the information which the person deals with must have been unpublished or unavailable to the public.
The “communicating” offence
Section 32 (A) of the Act provides;
- No insider shall:-
(b) communicate any unpublished price sensitive information to any person, with or without his request for such information, except as required in the ordinary course of business or under any law; or
The constituting element under this offence is that the insider as defined in Section 2 of the Act, has to communicate price-sensitive information to another party and that the information ought not to be readily available to the other party. Our understanding is that the insider’s intent is not important; the prosecuting authority merely has to prove that unpublished, price-sensitive information was disclosed to a third party.
The “disclosure” offence
Section 32 (A) of the Act provides;
- No insider shall:-
(b) counsel or procure any other person to deal in securities of any company on the basis of unpublished price sensitive information
The third offence occurs when an insider advises or seeks out another person to deal in securities of an entity based on unpublished price-sensitive information. In this instance, the would be whether the other party would have proceeded with the transaction or trade if the sensitive information had not been disclosed to him/her. Strict interpretation of the Act, places the onus of proof on the prosecuting authority to demonstrate the unpublished price-sensitive information had not been made public otherwise once the information is within the knowledge of the public it loses the meaning of “insider”. The prosecuting authority also must distinguish between the reliance on information obtained through market speculation and possession of unpublished price sensitive information.
This alert is for informational purposes only and should not be construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Gregory Makambo, Partner, (gmakambo@makambolaw.com), Kelvin Mwaniki, (kmwaniki@makambolaw.com) or your usual contact at our firm, for legal advice.