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Legislation to curb insider trading loomsTHE government could introduce legislation by year-end to tackle unfair dealing in stocks and bonds, in an effort to counter South Africa's reputation as a haven of insider trading. Mervyn King, chairman of the government-appointed task group on insider trading set up by former finance minister Chris Liebenberg last year, said his committee would deliver its proposals to the Finance Ministry within six weeks. Legislation based on the task group's recommendations could be passed late this year or early in 1998, King said, although this was a matter for government. Insider trading, never far from the surface in local financial markets, is back in the spotlight following the apparent leaking of news of a big shake-up at Automakers in January. Automakers' share price shot up ahead of news that majority shareholder Sankorp would make a payout to minorities at a substantial premium to the prevailing market price. "The committee's recommendations, if implemented, will hopefully try and solve some of these insider trading problems - and not just for equities, but also for bonds and derivatives," King said. "Things like the Automakers incident indicate that it is a serious problem, although difficult to measure." Insider trading is a criminal offence, with penalties of up to 10 years in prison and fines of up to R500 000, but there has never been a conviction. Richard Connellan, executive director of the Securities Regulation Panel, the watchdog charged with overseeing fair dealing, blames the current, inadequate legislation, particularly the onus to prove a case beyond all reasonable doubt under criminal law. "The panel believes there should be changes to the law. Proving beyond reasonable doubt is exceptionally difficult in matters such as securities dealing where there is in fact a lot of subjectivity," he said. Industry sources said the SRP was investigating the Automakers deal, although Connellan declined to comment. The SRP is believed to have lodged at least three "very strong" cases of alleged insider trading, they said, but the Attorney-General was unlikely to seek to prosecute in any of them because of patent weaknesses in the SA legal machinery.
Until the loopholes are tightened, individual investors will continue to suffer, according to David Sylvester, chairman of the Shareholders' Association of South Africa. "Obviously it is a serious concern. It's a pity it takes a case like Automakers to bring insider trading into the spotlight - it should be there all the time because it happens on a weekly basis." - Reuter
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