A Critique on the Existing Academic View on the Prohibition of Insider Dealing in the Sri Lankan Finance Law Regime: A Comparative Analysis

Abstract

Insider Dealing (hereafter “ID”) is an offence which relates to trading on securities of a company using information that is unpublished and price sensitive. This may cause serious prejudice to a company. This work presents that while Section 32 of the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987 (hereafter “SEC Act”) contains a competent prohibition of ID, that competency is diluted by the nature of the express definition given to ‘connected individual’ in Section 34 in the same Act. A persistent myth relating to Section 34 is a lack of express inclusion of shareholders to the definition of a connected individual, as a loophole. However, this paper attempts to debunk the aforesaid myth, by emphasizing the inherent implied inclusion of shareholders within Section 34. This work focuses on the issue of the definition of a shareholder in the SEC Act as limited to natural persons, would result in a significant threat to the stability and security of the corporate sector, since it is possible that a shareholder who is also a legal person would not be made liable for the offence of ID. Unlike the Sri Lankan legal context, the English law extends its prohibition of ID to a competent extent, by two actions. The first is the express inclusion of shareholders in the definition of an insider. The second is the inclusion of both legal and natural persons into the definition of an insider. This paper intends to shed light on the said pressing concern, with a sincere hope that the legal system of Sri Lanka will be better equipped to implement a competent prohibition of ID.