Insider Trading Recognition among the Stakeholders of Bangladesh and Adequacy of the Regulations

Abstract

Objective- As an emergent economy Bangladesh is trying to develop a capital market, but the share prices in Bangladesh are widely believed to be artificially designed and manipulated. It is necessary to get back the public confidence back in the market. Without analyzing the factual scenario, it would not be feasible. This study tries to empirically ascertain the allegations regarding insider trading in Bangladesh.

Design/methodology/approach– This is descriptive research with a focus on quantitative analysis. It analyses the primary data collected through structured questionnaires from 161 respondents from the four groups of stakeholders (board members, top-level employees, stock dealers, and investors) for description and relationship.

Findings– Although a significant proportion of the respondents are aware of insider trading, they feel their knowledge about insider trading is not adequate to detect or prevent it from happening through an employee (insider) code of conduct. Also, the respondents think that the rules preventing insider trading in Bangladesh are not adequate. According to their opinion companies are not taking sufficient measures to prohibit insiders to make a profit or avoid loss at the cost of general investors.

Implication– The findings of this study will be useful for managers and financial regulatory bodies in understanding the need to identify and stop insiders from making abnormal profits that violate market mechanisms and regulatory control; to ensure that key employees have a better fiduciary responsibility towards general investors; and to raise awareness of insider trading in the context of an insufficient legaland regulatory system.

Limitations- This study is based on Bangladeshi firms and may not be fully applicable to other developing countries.

Originality/value– The present study will originate the value for a better and balanced stock market development in Bangladesh like many other countries and managers and financial regulatory bodies will be able to ensure improved fiduciary responsibility of the key employees towards the general investors. An important barrier to the development of an efficient market can be removed by raising awareness that insider trading occurs in the context of an inadequate legal and regulatory framework.