The use of statistical techniques in the interpretation and implementation of South African insider trading legislation

Abstract

In South Africa there have been no prosecutions for insider trading, emanating either from the original provisions of the Companies Act, 1973, or the subsequent amendments, in terms of which this activity has been criminalised. In an attempt to facilitate both the interpretation of recently introduced provisions of insider trading legislation (s440F(l) & (2)), and the enforcement thereof, this article proposes the use of an appropriate form of event study technique. It is submitted that this methodology will assist in determining when security market information can be differentiated as materially price sensitive in an insider trading episode. The article illustrates the employment of the proposed methodology by analysing four possible insider trading episodes using data from companies listed on the JSE.