Cross-Border Insider Trading In Nigeria: Legal Implications, Enforcement And Investor Risks

In Nigeria, insider trading is regulated under a comprehensive legal framework comprising the Investments and Securities Act (ISA), 2025, the Companies and Allied Matters Act (CAMA), 2020, and the Nigerian Exchange Group (NGX) Rulebook

Introduction

In today’s interconnected global economy, the problem of insider trading has evolved beyond domestic boundaries to a worrying cross-border concern requiring careful consideration. Insider trading, which involves the misuse of material, non- public information (MNPI), undermines market integrity and weakens investor confidence. Despite the complex legal landscape, Nigeria has made significant legislative strides with the enactment of the Investment and Securities Act (ISA) 2025, signaling a stronger commitment to transparency, investor protection, and market fairness.

This article examines the legal framework, cross-border implications, recent statutory developments, enforcement challenges, and strategies to mitigate investor risk.

Legal Framework Governing Insider Trading in Nigeria

In Nigeria, insider trading is regulated under a comprehensive legal framework comprising the Investments and Securities Act (ISA), 2025, the Companies and Allied Matters Act (CAMA), 2020, and the Nigerian Exchange Group (NGX) Rulebook. These laws aim to ensure transparency and fairness by prohibiting the misuse of non-public information for personal or corporate gain.

Investments and Securities Act (ISA), 2025

The Investment and Securities Act 2025 significantly reforms Nigeria’s capital markets framework, repealing the Investment and Securities Act 2007. The new Act enhances the SEC’s independence and enforcement powers, broadens market participation, regulates exchanges and insolvency protections, and strengthens cross-border collaboration to tackle securities violation¹. These updates aim to enhance investor confidence, market integrity, and legal enforcement in Nigeria’s capital markets.

The Investment and Securities Act (ISA) 2025 prohibits insider trading², defining “insiders” as individuals with access to unpublished, price-sensitive information. This includes directors, employees, major shareholders (owning 5% or more), audit committee members, and others with close ties to the company³. Insider trading, or “insider dealing,” occurs when individuals use confidential information to buy or sell securities for personal gain⁴. The Act⁵ treats such conduct as illegal, as it undermines market fairness and integrity.

The ISA also prescribes penalties for violations:

• Individuals⁶: Minimum fine of ₦10 million or four times the profit/loss avoided, whichever is higher. Imprisonment of at least 5 years.
• Corporate Bodies⁷: Minimum fine of ₦50 million or four times the profit/loss avoided.
• Administrative Penalties⁸: The SEC may impose a fine of ₦20 million or four times the profit/loss avoided, with possible suspension or deregistration for market operators.
• Whistleblower Bounty⁹: Informants may receive up to 10% of recovered penalties for successful prosecution.

Companies and Allied Matters Act (CAMA), 2020: CAMA 2020 reinforces insider trading prevention by imposing fiduciary duties on company officers and restricting misuse of confidential information, promoting transparency and good governance.

Nigerian Exchange Group (NGX) Rulebook¹⁰: The NGX Rulebook complements statutory laws by setting disclosure and trading rules for listed companies and insiders, including restrictions during closed periods to ensure fair market practices.

Cross-Border Implications of Insider Trading

Cross-border insider trading involves the illegal use of confidential information to trade securities across different countries, potentially violating multiple legal frameworks. As global markets become more connected, such breaches can affect international investors and financial stability. Cross-border enforcement becomes challenging due to jurisdictional differences and varying regulations, highlighting the need for global cooperation and harmonized rules to safeguard market integrity.

Enforcement Mechanisms and Challenges

1. Jurisdictional Challenges: Despite Nigeria’s membership in the IOSCO MMoU, cooperation with foreign regulators is hindered by differing legal definitions and enforcement standards.

2. Domestic Enforcement Limitations: The SEC, though empowered to investigate and prosecute insider trading, faces challenges such as limited technology, slow judicial processes, and underreporting¹¹.

3. Regulatory Evasion: Insiders may exploit weaker jurisdictions to evade detection, taking advantage of lax enforcement or legal loopholes abroad¹².

4. Data Privacy Barriers: Foreign data protection laws often restrict timely access to financial records, limiting Nigeria’s ability to trace and prosecute cross-border offences¹³.

5. Diplomatic Delays: Bureaucratic processes and delays in mutual legal assistance can slow international cooperation, risking the loss of critical evidence¹⁴.

Investor Risks

Cross-border insider trading undermines market integrity and exposes investors to significant risks. These include:

• Market Manipulation: Insider trading distorts market prices, leading to unfair trading conditions for uninformed investors¹⁵.
• Loss of Confidence in the Market: The perception that insiders can exploit international market loopholes to trade unfairly undermines investor confidence. Both local and foreign investors may view the market as unsafe, reducing participation and liquidity¹⁶.
• Corporate Scandal: Involvement in cross-border insider trading scandals can harm a company’s global reputation, trigger regulatory probes in multiple jurisdictions, and lead to sharp declines in share value. Such scandals not only affect institutional and retail investors’ portfolios but also create long-term reputational damage that discourages future investment¹⁷.
• Regulatory Uncertainty: Cross-border trading often involves multiple regulatory regimes. Investors are exposed to risks arising from conflicting legal frameworks, delayed enforcement actions, or gaps in international cooperation, making it harder to predict outcomes or obtain redress.

Protection and Compliance Strategies

To address the challenges of cross-border insider trading, the following measures are recommended¹⁸:

• Enhancing Enforcement: Increased funding and training for regulatory agencies to improve their investigative capabilities.
• International Collaboration: Establishing agreements with foreign regulators to facilitate information sharing and joint investigations.
• Investor Education: Raising awareness about the risks of insider trading and promoting ethical trading practices.
• Whistleblower Mechanisms: To facilitate swift regulatory action, establishing secure and anonymous reporting channels can encourage employees and market participants to report suspicious activity.
• Cybersecurity and Data Governance: To safeguard material non-public information (MNPI), especially when stored or transmitted digitally, it is essential to implement strong encryption, enforce strict access controls, and conduct regular audits of IT systems.
• Standardized definitions of insider trading across jurisdictions to eliminate regulatory gaps and ambiguities.

Conclusion

Ultimately, the threat of cross-border insider trading seriously impacts the integrity of Nigeria’s developing capital markets. Although the ISA 2025 is a major step in combating this problem, its effectiveness depends on strong enforcement, international cooperation, and empowering investors through education and accessible ways to seek justice. To build a strong and reliable market, constant vigilance and firm action are essential to protect Nigeria’s economic potential from illegal profits.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.