Disclosed insider dealing seen impacting share prices.

On May 28, 2020, a director at Dangote Cement, Devakumar Edwin,  purchased 1 million units of the stock valued at N138.5 million. This is according to official disclosure by the company via the Nigerian Stock Exchange published June 1, 2020.

Between the 11th and 12th of May 2020, a major shareholder at UACN, Blakeney JP sold a cumulative 50 million unit os shares of the stock at prices ranging between N6.02 and N6.9.

Insider Dealing

The Nigerian Stock Exchange introduced the new “Insider Dealing” disclosure last year to limit the high prevalence of insider targeted sale of shares without informing the public. Proponents of transparency in matters of the stock exchange have often complained about insiders (directors and management of companies) with knowledge of the operations of the company trading the stock without adequate disclosures.

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A cursory view of some of the disclosures published by the NSE shows most of the companies ended up having their share prices rise subsequent to the sale or purchases. In the case of Dangote Cement, following the transaction disclosure, the share price rose to N140 before falling to N136. For UACN, the share price has risen to as high as N7.7. These are not the only two stocks that have recorded a positive rise since May.

Another example is the Insurance Company AIICO. On May 18th its Managing Director, Babatunde Fajemirokun purchased 1,198,330 shares at 90 kobo. Another 3,769,586  followed on the 20th at 96 kobo and subsequently 2,473,095  and 5,782,586  at 1.02 and 1.04 per share respectively. The stock has gone on to rise and now trades at N1.1 per share.

FBNH also reported one of its directors purchased over 2 million of the Holdco’s shares at about N4.8, the stock now trades at N5.4 per share. The same can be seen from over a dozen stocks surveyed by Nairametrics research including Cusdotian, Fidelity Bank, United Capital, Vitafoam, Stanbic IBTC between late April and May (the dates reported on the Nigerian Stock Exchange website).

Impact on share prices

Could there be a cause and effect? One will have to go all the way to last year browsing through tons of official disclosures to confirm if insider dealings do have an effect on short term share price movement. However, for the trades done in the month of May, a clear pattern can be seen between insider dealings and share price movement.

The Nigerian Stock Exchange has faced several criticisms about suspected cases of insider trading as no one has been convicted of it in recent years. Discussions on several internet forums and blogs capture retail investor frustrations about changes in share prices without any fundamental reasons. A few years ago, investors saw the share price of Forte Oil rise to as high as N240 from under N20.

It was only later to be revealed that significant trades between AMCON and the majority shareholder of the company may have been the reason for the share price growth. Several stocks still record significant price increases shortly before the results are announced or corporate actions disclosed suggesting some insiders may have instituted action on the back of insider information.

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We have also seen share prices of moribund companies rally without any tenable explanation.

A phenomenon we call 14.29 captured in a Nairametrics article some years back, detail how share prices can be manipulated. The Nigerian Stock Exchange has over the years introduced several measures aimed at curtailing insider trading updating its rule book periodically. This has brought some transparency to the Exchange. One of such is the Insider Dealing.

As more and more insiders disclose trades, experts will beam their searchlights on how these are impacting share prices and the market in general.