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In recent years, orchestrated directors’ dealings have dominated equities transactions and bolstering long-term price trends as well as activities at the Nigerian Exchange (NGX).
Also known as insider trading, directors’ dealings can significantly impact equities transactions for good or bad. When directors or executives buy or sell shares based on non-public information, it can create an unfair advantage in the market.
This can lead to a loss of investor confidence and undermine the integrity of the financial markets.
Who are Directors?
Directors are insiders, who occupy significant position of authority in an organisation. They see and know what outsiders don’t see and can’t know about the organisation.
“Whenever you see a director buying his own shares, the observer should buy more because those insiders have seen it all, and know what is in the air,” Mallam Garba Kurfi, Chief Executive Officer, APT Securities and Funds Ltd, told New Telegraph over the telephone.
Thus, equities dealings by directors of a company can potentially affect price movement, and here are some ways in which directors’ dealings impact on the performance of stocks trading.
Information effects
Directors have access to non-public information about the company’s performance, plans, and prospects. Their buying or selling activities can signal to the market that something positive or negative is happening within the company.
Similarly, perceived insider knowledge can also make tremendous impact in the performance of an equity. Even if directors don’t have access to material non-public information, their transactions can still be perceived as informed by the market. This perception can influence other investors’ decisions.
Buy and sell interest
In the same vein, when directors buy company shares, it can be seen as a vote of confidence in the company’s prospects.
This can attract other investors and drive up the stock price. Conversely, when directors sell company shares, it can be perceived as a lack of confidence in the company’s prospects.
This can lead to a decrease in investor confidence and a potential decline in the stock price. Thus, directors’ transactions can lead to short-term price movements, as other investors react to the perceived signals.
Repeated patterns of directors’ buying or selling can influence long-term price trends, as the market incorporates the perceived signals into its expectations.
Illustrative instances
Sometime last year, Mr. Femi Otedola’s wife was buying Transcorp Plc at N3.0 per share. Before then, her husband had launched an orchestrated buying interest in the equity and eventually bought out the company’s Chairman, Mr. Tony Elumelu, in what has come to be known as Otedola invasion.
It took Elumelu a negotiated deal to regain his leadership of the company whose equity was hitherto thought to be valueless and, therefore, traded at ridiculous price of N2.00 per share for more than a decade.
Today, what was the price of Transcorp shares after Otedola invasion? It ose above N14.0 per share and hit N17.00 per share before moderating to about N11.00 prior to its recent reconstruction.
“When you see an insider buying shares, he or she must have seen something better coming. It is a signal for the observer to take position,” the APT boss emphasised.
In recent weeks, companies have inundated the NGX with series of Direc tors’ dealings.
– For instance, senior employees of Aradel Holdings Plc, mopped up over 96,448 units of the stock in about five days of directors’ dealings last week in ambitious effort to arrest steep erosion of price value of the stock.
Series of company’s disclosure filings to the Nigerian Exchange (NGX) signed by the company’s Secretary, Titi Omisore (Ms.), revealed that the Senior Legal Counsel, Mrs. Oyindamola Oloniniyi, purchased 7,959 units at ₦493 per share on Wednesday November, 20.
The Aradel’s legal team Lead and Compliance Officer purchased the entire units in her name just as all other senior officers did. The following day, Nov. 21, another employee of the oil company, Mr. Lucky Chukwudi Okubor, purchased 290 units at N494 per unit.
Earlier on Nov. 19, Victoria Humphrey, another senior employee had bought a total of 3,458 units at N493. Also on the same day, Mr. Bolarinwa Akintilebo, the Head, Applications and Support, purchased 6,552 units at N493.60 per share.
Between Nov. 14 and 15, Dipo Akinbode, purchased 10,000 units at N491.10, and 1,990 units at N492.50 per unit while Daniel Ajarh purchased 1,850 units at N495.00 per unit.
Also within the period, Oluwatosin Ayandare purchased 59,126 units at N499.90 while Nathaniel Osawe purchased 5,223 units at N499.90 on Nov. 13, all in a radical move to arrest steep fall
The SEC also requires companies to disclose in their annual reports details of shares of the company held by all directors, including on an “if converted” basis
in the stock price. Unit price of the integrated indigenous energy company had been eroded significantly from the N702.69 listing price on October 14 to about N401.10 per share last week before intervention came through series of directors’ dealings or purchases that have helped to stabilise the equity valuation.
Investors in the oil company lost a total of N845 billion four days after 4.34 billion shares of the company were listed on the NGX main board by introduction, boosting NGX’s market capitalisation by N3.05 trillion as at October 14.
The stock sustained its steady decline all through the month of October until the release of its third quarter (Q3) financial statement in which the board and directors declared N8 interim divided that rekindled buying interest in the stock and consequently stabilised the stock price which closed at about N525.80 per share on Friday.
Apart Aradel Holdings, United Capital Plc, a financial services firm quoted on the NGX, filed nine separate disclosures of Directors’ Dealings on Friday, Nov. 22.
New Telegraph tracking on the equity performance reveal long-term sterling price trend bolster and sustained by regular insider dealings strictly in line with NGX corporate governance guidelines.
Legality of directors’ dealings
As to whether it is appropriate for insiders to deal on own shares, Mallam Kurfi said it was quite proper. “It is quite proper and appropriate. Nobody is restricted from buying shares.
The only restriction is that there is a closed period for an insider. “When the company is about to release their financial report, First Quarter (Q1), Second Quarter (Q2), Half Year (H1), Third Quarter (Q3), and Full Year End report, they are closed period.
“But once they release their information in the market, 24 hours after they are free to buy like any other person. So, as long as they are not in the closed period, the Directors are free to buy their own shares,” Kurfi explained.
Also commenting on the legality of dealings in own shares, Mr. Charles Fakhroha, a senior dealing member at the Exchange, said: “Directors’ dealings on own shares is appropriate and legally allowed globally in all stock exchanges, not only in Nigeria, so long as the dealings are appropriately disclosed in line with the market governance guidelines.
“But beyond the legality question, it is an unmistakable sign of confidence in a company when you see the directors trading in their shares.
It confirms the health status of the company as a going concern; and for us as stockbrokers it means even much more,” said the stockbroker.
“This is why the Nigerian Exchange has mandated all quoted companies as a matter disclosure guideline to disclose all directors’ dealings,” Fakhroha stated in an interview with New Telegraph.
Regulatory considerations
Directors are subject to insider trading laws, which prohibit them from trading on material non-public information. Disclosure requirements: Directors are often required to disclose their transactions in company shares, which helps maintain transparency and prevent insider trading.
In conclusion, equities dealings by directors can potentially affect price movement by signaling insider infor – mation, influencing market perceptions, and impacting short-term and long-term price trends.
Its against this background that Nigeria’s Securities and Exchange Commission (SEC) has guidelines that regulate directors’ dealings in securities.
According to the SEC’s Corporate Governance Guidelines, directors are required to disclose their shareholdings in the company, whether proprietary or fiduciary, prior to their appointment.
Additionally, the guidelines state that directors shall not engage in conduct likely to bring discredit upon the company and should encourage fair dealing by all employees with the company’s customers, suppliers, competitors, and other employees.
Last line
The SEC also requires companies to disclose in their annual reports details of shares of the company held by all directors, including on an “if-converted” basis.
It’s worth noting that the SEC has the authority to impose sanctions for noncompliance with these guidelines, including a fine of N500,000.00 in the first instance and a further sum of N5,000.00 for every day the violation persists.
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