Challenges for a Protective Regime: Insider Trading Laws and Regulatory Framework in the Context of the Ethiopian Securities Exchange and the International Experience
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Date
2022-12
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Addis Ababa University
Abstract
1956 saw the first ever public subscription for shares of an Ethiopian company – Ethiopian
Abattoirs. However, almost sixty years later, the work to develop the Ethiopian Securities
Exchange is underway, an effort that is long overdue but very much welcome.
This paper examines the risk of insider trading in the Ethiopian Securities Exchange. First, it
analyses the core concepts of insider trading in literature and studies the arguments for and
against its prohibition. It then studies the prohibition and regulation of insider trading in five
jurisdictions around the world, to be used as a doctrinal comparative analysis against which the
Ethiopian system will be analyzed. Then it goes to assess insider trading laws in the Capital
Markets Proclamation of Ethiopia and other relevant legislations. The paper then studies the
potential challenges that make the regulation of insider trading in Ethiopia difficult and concludes
by providing recommended solutions for those challenges.
Regardless of the existence of a structured and organized secondary market, for the past few
decades, shares of Ethiopian companies have been bought and sold in an informal securities
market. As such, there are several share trading cultures practiced in the Ethiopian market that
could potentially increase the risk of insider trading in Ethiopia, such as exaggerating profits and
profitability in the prospectus, withholding information, or the communal Ethiopian lifestyle which
could allow outsiders easy access to inside information through close-knit relationships.
Additionally, the lack of adequate financial literacy and investor education among the population
and the weakness of the law enforcement and judiciary when it comes to financial crimes and
market abuse would likely exacerbate the risk of insider trading.
The author of this paper has provided six recommendations geared at addressing the concerns of
policy makers, companies themselves and the public at large with regards to insider trading, and
its prohibition and regulation, in the Ethiopian Securities Exchange, possibly serving the capital
market as a whole as well.