TUTORIAL 13:

Insider Trading, Fraudulent Market, Manipulation, Short Selling

1. Ng is a dealer’s representative at Hwang-DBS Securities Berhad. He

planned a trading in which he obtained co-operation from another six
individuals whom have agreed to allow Ng to use their accounts for
trading.

Ng used the 6 accounts to transact in large volumes of APLI Industries

Bhd. shares between 7 – 9 November 2006. This caused a surge in the
volume and price of APLI on stock market at that time. Ng together with
the six individuals made some RM2.1 million out of the trading activities
within the 3 days.

a) Identify Ng has committed which type of prohibited markets

conduct under the Capital Markets and Services Act 2007.

Issue: Which type of prohibited markets that Ng has committed under

the CMSA2007?

Law:
S.175(1) CMSA 2007 states that no one shall do anything that is likely
to give the impression of active trading in any securities on a stock
exchange.

S.175(2) of the CMSA 2007 states that no person shall use any false
transaction or methods to maintain, inflate, or depress the market price
of any securities that do not entail any change in beneficial ownership
of the securities.

According to S.176 CMSA 2007, stock market manipulations are defined as any
transaction that has the effect of increasing, reducing, or pegging, fixing, maintaining,
or stabilising the price of any securities in order to persuade other individuals to trade
on the securities in question.

S.179 CMSA 2007 states that use of manipulative and deceptive

devices where it is unlawful for any person in relation to the sale and
purchase of securities (a) to use any device, scheme or artifice to
defraud; (b) engage in any act which operates as a fraud on any
person.

Application: In this case, according to section 175(1) of CMSA 2007,

Ng had made the share price and volume of APLI Industries Berhad to
have a false or misleading appearance. This is because Ng had
obtained the cooperation of 6 other individuals to transact in the shares
of APLI Industries Berhad. This made the volume and the share price
to increase drastically. (they are controlling the market) To outside
investors, this may seem to be a bullish uptrend or increase in demand
for the shares (misleading). However, in reality it is only due to the
action of Ng’s transaction upon 6 other individuals’ accounts.

Moving on, according to section 175(2) of CMSA 2007, it is seen

that Ng did not had any intention to involve the changes in the
beneficial ownership of APLI Industries Berhad. This is due to Ng’s use
of 6 other individuals’ accounts, this would spread the ownership
among 7 trading accounts, including his own. Other than that, Ng and
the 6 other individuals had made some RM 2.1 Million from the trading
activities, assuming that the shares of APLI Industries Berhad had
been sold off and profits had been realized means that the Ng no
longer has beneficial ownership to APLI Industries Berhad.

Continuing on, according to section 176 of CMSA 2007, Ng had

took part in raising the share price of APLI Industries Berhad with the
intent to induce other persons to transact, this was clearly shown when
Ng planned to obtained the permission of 6 other individuals in the
beginning (using other 6 account to trade and increase the price to
misleading outside investor).

Lastly, according to section 179 of CMSA 2007, the use of 6

other individuals’ trading account by Ng to raise the share price of APLI
Industries Berhad shows that the raising of share price was artificially
done so by Ng and due to his actions, it defrauded outside investors or
current shareholders when they bought the shares of APLI Industries
Berhad during the period where share price was surging.

Conclusion : In conclusion, Ng has committed prohibited market

conducts which falls under section 175(1), section 175(2), section 176
and section 179 of the CMSA 2007.