Blackout periods and their significance for listed companies


In a recent post by MyComplianceOffice, the company explained in detail blackout periods and insider trader risk for limited firms. 

Blackout periods are defined durations specified in a company’s trading policy during which its Key Management Personnel (KMP), including directors, are typically barred from trading its securities.

Often, these blackout times can extend to other employees privy to material non-public information (MNPI).

In contrast to blackout periods, trading windows restrict trading activities by KMP all year round, with exceptions only during certain designated periods. Therefore, a blackout period can essentially span the entire year, leaving only specific windows for trading.

At particular moments, individuals like directors, executives, or other employees may possess MNPI. Blackout periods safeguard against these individuals capitalising on this information through trading, which can potentially lead to unjust gains. Such measures are often set in place leading up to the publication of a publicly-traded company’s financial reports.

Proactive measures like blackout periods enable companies to:

  • Champion market fairness and credibility
  • Boost public trust through transparency and ethical actions
  • Foster and retain investor confidence in company processes
  • Reinforce an ethical workplace ethos by keeping all staff informed about the importance of blackout periods and trading windows
  • Comply with regulatory mandates and dodge non-adherence penalties
  • Bypass potential damage to the company’s reputation due to insider trading allegations
  • Assist all staff in evading legal complications, monetary fines, or even severe repercussions such as incarceration

Insider trading refers to a scenario where someone trades stocks or other securities in the public domain using privileged information, which hasn’t yet been publicly disclosed, thereby gaining an undue advantage in the market. This encompasses cases where someone with access to MNPI either trades themselves or shares this information, enabling someone else to benefit financially. MNPI that might be exploited for undue gains or losses comprises news of mergers, sales of substantial assets, shifts in executive or board members, unanticipated earnings reports, and stock repurchase initiatives.

While directors and KMP often have MNPI access and are by default tagged as “insiders”, anyone acting on non-public information for undue benefits can be guilty of insider trading. An illustration would be if an individual, upon knowing their company’s impending below-par performance disclosure, tips a friend, who then sells their stocks, both could be implicated in insider trading.

In Singapore, Mr Tay Yew Khem and Ms Hui Choy Leng were recently convicted for insider trading with Broadway Industrial Group Limited (BIGL) shares, resulting in their incarceration. In another case in Malaysia, Toh Kai Fatt, Managing Director of Ban Seng Plastic Industries & Assembly Sdn Bhd, was penalised RM2.36 million for insider trading. Meanwhile, Australia witnessed charges against Big Un Ltd’s executives in one of the country’s most significant insider trading scandals.

In the USA, Martha Stewart’s name became synonymous with one of the most renowned insider trading cases after she offloaded nearly 4,000 shares of ImClone Systems using non-public information.

Companies can minimise insider trading risks by:

  • Instituting suitable trading policies
  • Setting up a pre-clearance mechanism
  • Using Regulatory Technology (RegTech) solutions like MCO’s Personal Trade Manager (PTM) for automation
  • Regularly scrutinising personal trading activities
  • Keeping updated insider lists
  • Broadening blackout periods to include virtual asset trading

Read the full post here.

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