Corporate Governance: Insider Trading Perspective in Kenya

Abstract

The thesis examines corporate governance from the standpoint of insider trading. Furthermore, the study digs deeper into Kenya's legislative and supervisory framework's shortcomings in discovering, interrogating, prosecuting, and resolving insider trading. Insider trading and other unlawful market operations can suffocate financial markets' integrity and productivity in any country where they are practiced. To that extent, the average investor would eventually abandon the market, obstructing and crushing critical securities market activity such as capital generation. In this regard, Kenya has developed a good regulatory framework to overcome these barriers and improve its competitiveness in the financial markets. Even yet, insider trading happens to be a difficult crime to detect and prosecute. The lowest number of convictions and successful civil settlements indicate this. In addition, the study considers four primary objectives: the efficiency of Kenya's regulatory framework, the effectiveness of Kenya's institutional structure, the lessons learned from Australia and South Africa, and the recommendations that can be adopted to avoid insider trading in Kenya. To achieve the objectives, a doctrinal research approach was adopted. Furthermore, in order to assess Kenya's regulatory framework's efficacy, legislation such as the Kenyan Constitution, 2010, the Capital Markets Act, cap 485A, the Companies Act, the Capital Markets (Securities) (Public Offers, Listings, and Disclosures) Regulations, and the Code of Corporate Governance Practices for issuers of Securities to the Public 2015 and the Stewardship Code, 2017 were all thoroughly examined. While Kenya has made tremendous progress in terms of securities legislation, the laws still have deficiencies that make pursuing market abuse techniques such as insider trading problematic. Similarly, the study explores the role and efficacy of key institutions responsible for identifying and enforcing insider trading, such as the Capital Markets Authority, the Capital Markets Tribunal, the Nairobi Securities Exchange, Kenyan courts and the office of Registrar of Companies. Notably, effective insider trading prosecution continues to be a struggle for these institutions. The primary regulatory agency for market abuse, the Capital Markets Authority has flaws such as ineffective supervisory procedures, difficulties detecting and preventing insider trading, a lack of sophisticated market surveillance systems, and limited supervisory powers, to name a few. Lastly, the study outlines the lessons that can be emulated from Australia and South Africa. It may be claimed that Australia has some of the strictest anti-market-abuse legislation in the world. It's also plausible to claim that it's one of the most innovative and progressive anti-market-abuse legislations in the world. South Africa was also chosen for this study since it is Africa's forerunner in insider trading regulation. The Australian parliament has consistently passed a variety of legislation, rules, guidelines, and other necessary measures to combat insider trading in the Australian financial markets. Similarly, a number of preventative enforcement techniques, such as Chinese walls, whistleblower immunity legislation, and private rights of action, have been identified in Australia. South Africa, on the other hand, has made many improvements to its market abuse legislation in order to improve market abuse regulation. As a result, the Financial Markets Act of 2012, which added new civil remedies, criminal fines, administrative sanctions, and regulatory agencies, was approved. Furthermore, the Financial Sector Conduct Authority has established robust procedures for detecting, investigating, and penalizing insider trading offenses. By analyzing insider trading from the perspective of corporate governance, this study hopes to add to the current literature both regionally and internationally.