BSP boss shines spotlight on insider trading

As reported by the BusinessMirror, BSP Governor Eli Remolona [link] gave a speech at the Manila Polo Club to a meeting of Rotary Club members where he noted the problem of insider trading, citing the specific example of how “nothing moves” when listed companies report overwhelmingly positive earnings because those trades were placed ahead of the announced earnings. There are no transcripts of the speech that I can find so it’s not possible at this time to get a feel for the context of these statements from the BSP governor.

MB bottom-line: I was amazed to see that Mr. Remolona chose to bring up insider trading as a problem on the PSE, but I was disappointed to see that he focused on weak price action around earnings reports and not any of the clearly suspicious trades that happened ahead of the release of material non-public acquisitions information. The reason why I don’t care (as much) about people making trades in anticipation of earnings reports is that, well, that’s what we do. That’s what people do all over the world. Professionals use every trick in the book to try and estimate how a company’s quarter or year has gone ahead of the official announcement, in hopes of finding a trade that could squeeze a few percentage points of value out of speculating on a certain result. Would savvy investors sit back and watch Cebu Pacific [CEB 33.40, up 0.8%; 135% avgVol] and Philippines Airlines [PAL 5.55, up 6.7%; 0% avgVol] fill plane after plane full of passengers, but patiently wait until those airlines disclosed profit recovery to suddenly jump in and snap up shares of CEB and PAL in one massive flurry of activity? No, probably not. And that’s why Mr. Remolona’s example is such a wasted opportunity. Why not bring up the suspicious activity in Figaro [FCG 0.66, up 3.1%; 233% avgVol] ahead of a completely random stake purchase by Monde Nissin [MONDE 8.68, down 0.1%; 29% avgVol] at an elevated price? Or the weird trading activity in PLDT [TEL 1297.00, up 1.3%; 87% avgVol] shares ahead of the bombshell capex disclosure last year. Or the suspicious activity in Axelum [AXLM 2.28, down 0.9%; 41% avgVol] ahead of Metro Pacific Investment’s announcement of its intention to purchase a stake at a high valuation? Those examples are better because they all involve transactions that surprised the general market, and could only have been known by a select group of people when the suspicious trades were made. But investors placing bets on good earnings ahead of the actual announcement of earnings? That’s just kind of how this is done.

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