Directors of listed companies may engage in activities on their shares of the company from the floor of the Stock Exchange. An efficient market implies that such activities by people who have access to a listed company's stock should be known by all. This is why directors’ dealings are published in the Nigerian Exchange Group (NGX).
What are directors’ dealings?
A transaction of a director on his/her shares of the company or its subsidiaries. This is reported and published on the stock exchange market to alert investors to such deals.
For example, a director may want to sell their shares after resigning from a company or for personal reasons. There must be a notice by the director to the company before engaging a dealer.
This is because directors have privileged information that no company has. They can use such information at the expense of the efficiency of the stock exchange market. To prevent this a corporate disclosure must be made.
Are directors’ dealings an infringement of their right
You may say that publishing a director’s dealings is an infringement on the right of the director. On the contrary, it is also a criminal offence for directors to make a transaction on their shares at the Exchange. Especially during closed periods and the knowledge they have that no one else does.
If a director does not want the market to know how they engaged with their shareholders, then he/she should resign. It is also a corporate governance issue for companies to publish directors' dealings on the NGX.
Directors are appointed by shareholders. Therefore, their decisions should be in the shareholders' best interest. A director can use privileged information to secretly transact on the company's shares. It means that he is acting in his own interest rather than those of the shareholders.
Why are directors' dealings published on the NGX website?
The Nigerian stock exchange makes it mandatory for listed companies to publish directors' dealings. Here are some of the reasons:
To prevent insider dealings
Insider dealings are direct or indirect dealings by a director or his/her connected persons on the floor of the NGX because of their privy to unpublished and price-sensitive information.
Insider trading is a criminal offence. If found guilty, a director might go to jail. To avoid this, directors make public any planned transactions on the Exchange floor.
Improve market efficiency
It is the responsibility of every stock market to be efficient. This is to comply with the theory of efficient market hypothesis (EMH). The theory explains that all stock market actors have equal information at no cost and at the same time. This situation occurs in a perfect market.
Therefore, exchanges pursue a strong form of efficient market. One way to achieve this is to prevent individuals who are connected to a listed company from dealing in their shares without making the information public.
It aids in share forecasting by analysts
When a director's deal is published, it sends a signal to investors and other market actors. Analysts can forecast the share price. Therefore, we can say that directors' dealings are part of price-sensitive information.
Ensure NGX compliance
The Nigerian Exchange Group (NGX) has a regulatory arm. NGX Regco. They issue regulatory compliance that all companies must abide by. Failure to comply may lead to sanctions. To avoid these sanctions, listed companies publish directors' dealings.
As part of corporate governance
Corporate Governance means the way a company is directed. The NGX provides a code of corporate governance that all quoted companies must follow. More so, the theory of corporate governance revealed that directors prefer to act in their best interest. Thereby profiting themselves rather than the shareholders who invest funds in the company. Such code ensures that directors make decisions that will benefit investors.
In conclusion, directors' dealings documents released on the floor of the Nigerian Stock Market are to protect shareholders from the excesses of the top management.