An analysis of the role-players in the enforcement of the Zimbabwean insider trading laws

• Author: Howard Chitimira, Pontsho Mokone
• Position: Securities and Financial Markets Law, Faculty of Law, North-West University, South Africa/Doctoral (LLD) candidate, Securities and Financial Markets Law, Faculty of Law, North-West University, South Africa
• Pages: 134-156

An analysis of the role-players in the enforcement

of the Zimbabwean insider trading laws1

Associate professor Howard CHITIMIRA2

PhD. student Pontsho MOKONE3

Abstract

Insider tradin g is statutorily prohibited in Zimbabwe. This is primarily aimed at

promoting public investor confidence, market efficiency and enhancing the integrity of the

Zimbabwean financial markets. As a result, some activities that could amount to insider

trading in the Zimbabwean financial institutions and financial markets are outlawed in the

Securities Act 17 of 2004 [Chapter 24:25] as amended (Securities A ct). Despite these

comendable efforts, various flaws and gaps in the aforesaid statute ha ve somewhat

impeded the role and effectiveness of the anti-insider trading regulatory bod ies and

enforcement authorities in Zimbabwe to d ate. Given th is background, the article

investigates the role of the relevant enfo rcement authorities and other key role-players in

the detection, investigation and prosecution of insider trading activities in Zimbabwe. This

is done by discussing the role of the Securities and Exchange Com mission of Zimbabwe

(SECZ), the Zimbabwe Stock Exchange (ZSE) and the courts.

Keywords: insider trading, enforcement, role-players, detection, market integ rity.

JEL Classification: K22, K33

1. Introduction

Insider trading could be defined as a practice by which one person that

possess price or value sensitive non-public (confidential) information, concludes a

transaction in securities to which that information relates without sharing that piece

of information with those that do not possess it in order to gain an unfair advantage

over such persons.4 Notwithstanding the fact that insider trading is statutorily

1 This research article was supported in part, by the National Research Foundation of South Africa

(NRF), Grant Number: 106056. In this regard, the authors wishes to acknowledge and thank the

NRF for its valuable support. Moreover, the article was influenced in part, by Pontsho Mokone’s

doctoral thesis entitled: The Regulation of Insider T rading in Zimbabwe: Proposals for Reform

(LLD-Thesis, North West University, 2018), pp. 82-100. In this regard, she wishes to acknowledge

the expert input of Professor Chitimira.

2 Howard Chitimira – Securities and Financial Markets Law, Faculty of Law, North-West University,

South Africa, howard.chitimira@nwu.ac.za.

3 P ontsho Mokone – Doctoral (LLD) candidate, Securities and Financial Markets Law, Faculty of

Law, North-West University, South Africa, pontshophila@gmail.com.

4 C.P. Osode, ‘Defending The Regulation of Insider Trading on Basis of Sound Legal Orthodoxy: The

Fiduciary Obligations Theory Law’ in C. Okpaluba, (ed), Law in Contemporary South African

Society, Cape Town, New Africa Books South Africa, 2004, p. 303; also see sections 88 -94 of the

Juridical Tribune Volume 9, Special Issue, October 2019 135

regulated in Zimbabwe, there are still various flaws and challenges in the

enforcement of the anti-insider trading prohibition in terms of the Securities Act.5

For instance, the insider trading provisions in the Securities Act are relatively

inadequate.6 Moreover, regulatory bodies, enforcement authorities and/or other

role-players have inadequate resources to effectively and timeously detect,

investigate and prosecute insider trading activities in the Zimbabwean financial

institutions and financial markets.7 Another challenge affecting the enforcement of

the anti-insider trading prohibition is the lack of cooperation between regulatory

bodies and/or enforcement authorities and other role-players responsible for

enforcing the insider trading laws in Zimbabwe.8 Notably, such enforcement

authorities and role-players include the Securities and Exchange Commission of

Zimbabwe (SECZ),9 the Zimbabwe Stock Exchange (ZSE) and the courts.10 It is

submitted that these enforcement authorities should be equipped with adequate

resources in order to effectively curb insider trading practices in Zimbabwe. The

anti-insider trading enforcement authorities and related role-players should also

cooperate well with each other in order to effectively enforce the insider trading

provisions contained in the Securities Act. In this regard, it is important to note that

there are very few insider trading cases that have been successfully investigated,

settled or prosecuted in Zimbabwe to date.11 This flaw is prima facie proof that the

SECZ, the ZSE and the courts are currently grappling with the detection,

investigation and prosecution of insider trading activities in the Zimbabwe.12 For

Securities Act 17 of 2004 [ Chapter 24:25] as amended (Securities Act); D. Botha, ‘Control of

Insider Trading in South Africa: A Comparative Analysis’, 3 SA Merc LJ (1991), p. 2-3.

5 17 of 2004 [Chapter 24:25] as amended (Securities Act), see sections 88-94.

6 See sections 88-94 of the Securities Act.

7 See related comments by P. Saungweme, P. Ricardo, and B. Pradeep, ‘A Framework for Combating

Insider Trading on Developing Stock Exchanges: Evidence from the Zimbabwean Stock

Exchange’, 7(17) African Journal of Business Management (2013), p. 1630, 1635-1636; A.

Carvajal, and J. Elliott, ‘The Challenge of Enforcement in Securities Markets: Mission

Impossible?’, International Monetary Fund Working Paper WP/09/168 (2009),

https://www.imf.org/external/pubs/ft/wp/2009/wp09168.pdf accessed 23 September 2018, p. 12-32.

8 See related discussion by H. Chitimira, and V.A. Lawack, ‘An Analysis of the General Enforcement

Approaches to Combat Market Abuse (Part 2)’ 34(1) Obiter, (2013) p. 64, 65-76; A. Carvajal, and

J. Elliott, (2009) https://www.imf.org/external/pubs/ft/wp/2009/ wp09168.pdf, accessed 23

September 2018, p. 12-32.

9 Section 3 of the Securities Act; see further L. Bromberg, G. Gilligan, and I. Ramsay, ‘Insider Trading

and Market Manipulation: The SEC’S Enforcement Outcomes’, 45(2) Securities Regulation Law

Journal (2017), p. 109, 110-125; Q. He, and O.M. Rui, OM, ‘Ownership Structure and Insider Trading:

Evidence from China’ 134(4) Journal of Business Ethics, (2016), p. 553, 555-574.

10 Sections 88-94 of the Securities Act; see further H. Chitimira, ‘Overview of Selected Role -Players

in the Detection and Enforcement of Market Abuse Cases and Appeals in South Africa’, 1

Speculum Juris (2014), p. 108, 110-124.

11 This information was obtained from an interview that was conducted at the SECZ by the authors

with Mr T Mataruka (Legal and Licensing Officer of the SECZ) and Mr N Mahombera

(Surveillance and Risk Manager of the SECZ) on 29 June 2018. See related comments by T.

Frankel, ‘Insider Trading’, 71(3) SMU Law Review, (2018) p. 783, 790-797.

12 This information was obtained from an interview that was conducted at the SECZ by the authors

with Mr T Mataruka (Legal and Licensing Officer of the SECZ) and Mr N Mahombera

(Surveillance and Risk Manager of the SECZ) on 29 June 2018. See further M.A. Spitz, ‘Recent