A Nairobi businessman and bond trader Mr Rodrick Muhoro has found himself in trouble for insider trading. The trader was fined KES 208 million by the Capital Markets Authority (CMA) after being found guilty of the offence committed between 2016 – 2017. He was also banned from the bond trading for 10 years.
What is insider trading?
Insider trading is when a trader finds privileged information that is not yet in the public sphere about impending bond and share sales, using the information to front run the market, and making deals that benefit themselves rather than other investors. The trader may cause one investor to benefit more than the other where for instance they advise one to buy shares or bonds at a lower price during the period before they are offered to the public at a higher price. This happens mostly within the same trading day, what is referred to as dual trading.
Accusations against the bond trader
CMA said Mr Muhoro created artificial arbitrage opportunities which were based on prior knowledge of customer orders. That he colluded with fixed income dealers at brokerage firms through the scheme to realise a capital gain of Sh104 million by taking advantage of the price differential before the client orders were executed. The guilty parties would then share the gains, an act prohibited under the Capital Markets Act.
Apart from the ban and the double penalty on the gains made, Mr Muhoro was referred to the Directorate of Public Prosecution (DPP) and the Asset Recovery Agency (ARA) which will recover assets bought by the gains. It is not clear who are the other parties or what will to those involved in the scheme.