Loose lips and share flips
The Central Bank monitors suspicious trading patterns on the Irish stock market. A recent takeover approach saw trading volumes 2,700pc higher than normal before the deal was announced. What is happening?
Published 05/04/2015 | 02:30
Knowing that a takeover approach is about to be announced, or being aware before the rest of the market that some upcoming trading results are horrific, can provide a glorious opportunity to make huge profits trading shares before prices move.
Buying or selling shares with information not available to other investors is illegal. The Financial Services Authority, the UK's markets watchdog has estimated that there was "suspicious trading" patterns ahead of 30.6pc of all major company announcements in 2010.
The UK watchdog also noted that the 11.5pc jump in the share price of the then Irish-listed electricity group Viridian had a trillion to one chance of happening in the normal course of events on the day before a takeover approach was announced in 2007. An investment banker based in London, his wife and an associate admitted eight charges of insider dealing in relation to trading Viridian shares.
Nobody in Ireland has ever been convicted of insider trading. Ever.
A Sunday Independent investigation clearly shows that there has been heavy trading in a number of Irish shares before large announcements over the last year.
It should be noted that there is no suggestion of improper conduct on the part of management personnel at the companies in question.
There is an extensive and global range of individuals who can get access to sensitive information. Historically, a large number of insider trading cases have involved individuals outside the companies whose stock has been traded.
Trading in the Meath-based company's shares was at its highest level in two years the day before a potential takeover offer for the company was announced on the Irish Stock Exchange (ISE) on March 11. The approach came from Canadian miner Almonty Industries.
Bloomberg data shows around 1.5 million Ormonde shares changed hands on the Irish Stock Exchange (ISE) on March 10, compared with 59,500 on March 9. It was the largest amount since February 2013.
The share price fell that day, but by 4 percentage points less than the day prior, when only 59,500 shares were moved.
The next day, when the offer was announced on the ISE, shares soared by almost 40pc to 47c each, and were traded at a greater volume than on March 10.
A spokesman for Ormonde said the company was unaware of the approach from Canadian miner Almonty until around 9.30pm on March 10 - hours after the stock exchange was closed for the day.
A press release filed by Almonty appeared on Sedar, the system used for filing securities-related information with the Canadian authorities, at 5.26pm Eastern Time (9.26pm Irish time) on March 10.
Sedar says updates are posted to the site within 15 minutes of their arrival. "There is no certainty that any transaction will be progressed or, in particular, that a formal offer to shareholders will be made," the release said. Ormonde are still ruminating on whether to accept the approach.
Almonty made another approach to Ormonde in 2013 but later pulled out. Ormonde chairman Mike Donoghue said the first offer "was opportunistic, without strategic or economic merit".
"It provided no basis for engagement in light of Ormonde's ongoing focus on advancing the group's flagship Barruecopardo Tungsten Project," he added. Last month, the company said it will respond to the new offer in due course, and "strongly" advised shareholders to take no action.
It said the offer provided no material detail on how finance for Barruecopardo would be obtained.
The large spike in volume so near an announcement could indicate that someone with knowledge of the impending approach bought shares in the hope that they would increase in value after the announcement.
A spokeswoman for the ISE told the Sunday Independent that the exchange "monitors trading activity in securities" in all its markets. "Certain types of trading activity may be queried or investigated by the ISE, as appropriate," she added.
The ISE does not comment on individual cases.
A similar trading pattern emerged with Aer Lingus shares.
On December 17 last, the day before IAG's first approach for the airline was announced, 3.3 million shares - worth €6m - were traded, compared to 338,000 on December 16.
That was among the 10 highest trading volumes in Aer Lingus shares in 2014 to that point.
The share price rose by 2.8pc.
On December 18, after media speculation about an IAG offer, Aer Lingus said it had received an offer on December 14 and rejected it on December 16.
It said the offer "fundamentally undervalued" the company. IAG subsequently upped its offer.
An Aer Lingus spokesman said the airline does not comment on the volume of shares being traded on the markets.
Huge profits were made by anyone who traded in Ormonde or Aer Lingus the day before the major announcements.
Ormonde shares closed at 3.4c each on March 10. By March 19 they were trading at 5c each. Aer Lingus shares closed at €1.82 on December 17. The next day they traded at €2.36.
The Central Bank is the body charged with supervision market abuse on the Irish stock market. "The Central Bank does not comment on individual investigations," it told the Sunday Independent.
"The Central Bank conducts its own monitoring of the regulated market and investigates unusual activity and any suspicious transaction reports received from the Irish Stock Exchange, market participants and other competent authorities.
"The Central Bank also conducts reviews of regulated firms and securities issuers in relation to compliance with requirements of the Market Abuse Regulations."
There is no estimate available on the level of market abuse in Ireland, the Central Bank added.
The one and only case taken by regulators was back in 2002. Former Dunloe Ewart boss Philip Byrne, the first person in this country to be charged with insider dealing, was found not guilty by a jury at the Dublin Circuit Criminal Court.
Byrne had denied two charges of contravening the 1990 Companies Act relating to insider dealing following the sale of shares in the then stock market listed property firm Dunloe Ewart at a time the firm was involved in funding discussions.
There have been a number of other probes including the long running investigating into the sale of DCC's stake in Fyffes in 2000. Trading at Kingspan and C&C has also been examined.
By comparison, the UK's FCA and its predecessor, the Financial Services Authority secured 23 convictions involving illicit profits totalling less than €8.3m between 2009 to January 2014. In that period five people charged with insider trading were acquitted, with seven others awaiting trial.
The USA's Securities and Exchange Commission has filed more than 50 insider-trading civil cases every year between 2009 to 2013. The US watchdogs have a far more impressive array of tools to combat market abuse, including wire taps. A new tool kit for Irish regulators may be needed. One that should include a bigger stick.
Sunday Indo Business