The action by the Capital Markets Authority (CMA) to slap two chief executives with cash fines and varying bans from holding key positions in any of its regulated firms for involvement in an insider trading scandal sends a warning shot that the time for such malpractices that undermine the stock market are over.
The regulator penalised stock market trader Aly-Khan Satchu and former Kestrel Capital boss Andre DeSimone for their roles in the KenolKobil insider trading ahead of last year’s takeover announcement by French company Rubis.
Besides a three year ban from holding a key office in companies regulated by the CMA, Mr Satchu will also pay a fine of Sh4.69million, being commissions he earned from illegal trades. Mr DeSimone will pay a Sh2.5million cash penalty and serve a one-year ban for disclosing price-sensitive, non-public information to Mr Satchu and fellow stocks agent Kunal Bid,as Rubis bought an initial 24.99 percent stake in KenolKobil in preparation for the October takeover bid.
The sanctions are a commendable step especially considering the sophisticated nature of investigations undertaken by the CMA which helped to convict the suspects. The successful use of forensic imaging of computers and mobile phone data in the investigation raises hope of tackling cases of fraud in an electronic trading environment. It sets a standard that other institutions should rise up to when faced with similar challenges. These convictions will serve as a deterrent to rogue traders although a lot more could be done to end such collusion by increasing vigilance and enforcing the code of conduct for various players in the market. However, loopholes in the law have frustrated the fight against insider trading because the crime in not well-defined in the Capital Markets Authority Act.
Previous attempts by the CMA to prosecute suspected insider trading offenders have proved futile mainly due to ambiguity in what the crime entails. Insider trading cases fronted by the regulator have been thrown out due to lack of evidence. Treasury Secretary Henry Rotich in his Budget statement for the financial year 2013/14 recommended changes to the CMA Act to deal with rogue stock traders. These changes have not been made — leaving Kenya’s capital markets susceptible to manipulation. This doesn’t augur well for the country which holds ambitions of becoming a financial hub for the region. Legislators should take it upon themselves to amend the CMA Act and lock out unscrupulous players who may attempt to profit through illegal means.