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ZSE trading vulnerable to manipulation— analysts

WHEN dual listed cement producer PPC announced that their stock was now fungible, the market had mixed reactions to the news.

For some investors, this was time to get rich or die trying. Fortunately for them, their PPC share was now interchangeable with the same stock on the JSE. But analysts raised eyebrows when the news broke. Their source of suscipicion was simple, timing.
Analysts say the company issued a cautionary statement at a time when plans to have the stock fungible had reached an “advanced stage”, raising suspicions of insider trading.
Ranga Makwata, an investment analyst, observes: “The successive price movements observed between February 15-22, when the notice was finally publicised, bolsters that suspicion. PPC rallied by 15,7% against the industrial index’s -4,62%. The accumulation of PPC during this period is also evident in the volume increases from only 486 shares from a starting price of US$2,60 on February 15 to 2 310, 7 411 and 16 860 on the three successive days.”
On the date of the announcement, he added, volumes peaked at 21 500 while the price at US$2,95, was more than 40% discounted compared to the JSE equivalent price of US$4,23. The share price jumped to US$3,79 barely a week after.
The March financial reporting season has seen the scrutiny of Zimbabwe’s capital markets and investment regulations coming to the fore. With now just over a year trading in United States dollars, the equities market seem to be more lucrative for a few investors.
Currently trading with no regulations that outlaw or define insider trading, the financial markets could have become another haven for cunning company executives.
Analysts say the absence of stop-gap measures to detect any suspicious transactions on the bourse, trading remains exposed to manipulation.
Zimplow, an agro implements manufacturer, which has just released its financial results, had an interesting trading pattern on Monday.
Speculation is ripe that the 102 million Zimplow shares sold at US$0,03 could have been linked to a senior member of the board. But with no regulations on disclosure, such a transaction will remain market gossip.
Elsewhere the regulator of exchanges would have moved swiftly to investigate the circumstances which had given rise to sudden increases in share trading. 
The United States Securities and Exchange Commission however says insider trading could be either legal or illegal.
The legal version, according to the US commission, is when corporate insiders, officers, directors and employees, buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the commission. 
“Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, non-public information about the security. Insider trading violations may also include ‘tipping’ such information, securities trading by the person ‘tipped,’ and securities trading by those who misappropriate such information,” says the commission.
Locally, the window of “suspicious” trading patterns will remain open until regulations are in place. The Securities Commission of Zimbabwe was this week quoted saying the commission was working on various statutory instruments that seek to plug insider trading and address matters of disclosure.
Alban Chirume, the commission’s chief executive officer, admitted that the Securities Act, which governs the equities market, needs some changes. And so the party continues for some astute market punters until regulations are gazetted?
“I think to solve this we need a computerised Central Depository System. Automation of the stock exchange is a critical element for minimisation of fraud and monitor compliance with the Indigenisation and Empowerment Act,” said Chirume.
Currently, he added, such information can only be drawn from transfer secretaries.
“There are various issues of insider trading, which are not talked about in detail, that have to be overcome by putting the rules and regulations through a statutory instrument, which is a subsidiary legislative instrument of the Act (Securities Act),” Chirume said.
It remains to be seen whether the commission would closely monitor trades on the bourse in the absence of regulations and also if the ZSE committee will recommend the deregistration of players suspected of manipulating the exchange.
In 2002, the committee pushed for the suspension of Continental Securities’ brokers Bruce Eeson and Edwin Gumbo for “bringing the exchange into disrepute”.

 

Bernard Mpofu

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