For the first time in the history of Bangladesh's capital market, the penalty for insider trading is going to surpass the manipulators' illegal gains.
The Bangladesh Securities and Exchange Commission (BSEC) has decided to impose fines on the insiders of low-cap textile company Stylecraft Limited based on what they had earned from illegal trading activities in 2018.
Some other outsiders, who extremely manipulated Stylecraft shares, will also face the same music, announced the securities regulator after its commission meeting on Wednesday.
Stylecraft shares took only eight months to skyrocket from Tk1,300 to Tk4,900 in 2018.
Later, a regulatory investigation found that Stylecraft Company Secretary Edmund Guda and the then managing director themselves had traded the company shares violating insider trading rules while seven other individuals had played a dirty role in market trading to influence the stock price.
The BSEC in 2019 fined the two insiders a meagre Tk2 lakh each and the outside manipulators were merely warned.
The securities regulator has long been criticised for insufficient penalties against bigger securities crimes. Now the amount of fine it is going to impose will be such that violators learn their lesson.
This time, the BSEC also included the Stylecraft chairman in the list while the number of insiders to be punished increased to three, excluding the chairman.
Stock market expert Abu Ahmed, an honorary professor of economics at the University of Dhaka, said when insiders, with their exclusive knowledge of a company's business and disclosures, themselves trade stocks and engage other manipulators in pursuing the planned stock pricing, general investors are victimised.
"All over the developed and developing world, securities regulators impose higher fines than manipulators' illegal gains and it is a good sign that the BSEC has also begun embracing the same strict principal," he said.
Stopping dirty practices in the stock market should always remain the top priority for the sake of real investors' interest and confidence, opined Professor Abu.
Stylecraft, listed in 1983, has only Tk12.62 crore in paid-up capital. Around half of its shares are held by the general public now.
Following the stock price jump in 2018, the company announced a 410% stock dividend and now each of its shares is priced at Tk163 only against the net asset of Tk66 per share.
In FY19, the company earned Tk7.74 against each of its shares.