RIYADH — The Saudi Capital Market Authority (CMA) issued an awareness booklet to explain trading based on inside information (insider trading), which is a prohibited activity in accordance with Article 50 of the Capital Market Law as well as the regulations and rules issued by CMA – specifically Market Conduct Regulations.
The booklet comes as a part of endorsing continuous awareness efforts about illegal practices to the Capital Market Law and its Implementing Regulations, especially practices related to Insider Trading in the Saudi Capital Market, it's also in line with the CMA's efforts to develop the Saudi Capital Market and protecting market and investors from unfair and unsound practices along with seeking to achieve fairness, efficiency and transparency in Securities transactions.
Article 50 of the Capital Market Law states "Any person who obtains, through family, business or contractual relationship, inside information (insider) is prohibited from directly or indirectly trading in the security-related to such information, or to disclose such information to another person with the expectation that such person will trade in such security."
Insider information means – as defined by the Capital Market Law –information obtained by the insider, which is not available to the general public, has not been disclosed, and such information is of the type that a normal person would realize that in view of the nature and content of this information, its release and availability would have a material effect on the price or value of a security related to such information, and the insider knows that such information is not generally available and that, if it were available, it would have a material effect on the price or value of such security.
The article also states that "No person may purchase or sell a security based on information obtained from an insider."
Further, in pursuant to the royal order to transfer the terms of reference of entities and committees relating to the investigation and prosecution of criminal offenses to the Bureau of Investigation and Prosecution (BIP), the powers of investigating and prosecuting violators of Article 50 of the Capital Market Law has been transferred to BIP, in addition to another two articles which were also transferred to BIP – being Article 31 and Article 49.
According to this, insider trading is one of the criminal offenses in the Kingdom. Hence, it is prohibited for both the insider and any other person to trade based on insider information. The penalty for such a crime may reach to imprisonment.
The booklet, available on CMA's website www.cma.org.sa, contains examples of insider trading and CMA's role in addressing such practices, along with advice and tips for companies in order to protect their internal information from leakage. Among the content of the booklet is also the need for the company to set up internal written policies and procedures to ensure the protection of its internal information against leakage and to work on applying and periodically updating such policies and procedures. It recommended to limit individuals obtaining such sensitive internal information and make a list of their names, and to work on reducing their number as much as possible. It also includes several advices and tips on Information Technology, Continuous Training and Awareness, Chinese Walls and Confidentiality Agreements. — SG
