Quick stock price hikes before corporate declarations and then a slide just as swiftly after disclosures are the fallouts of trading based on insider information, sources in the capital market say.
The intention to make rapid capital gains also prompts investors to pull out instead of waiting for the dividends, they say.
Golam Rabbani, chief executive officer at Modern Securities, said many a time a stock's upward movement begins when information about the company's imminent declarations leaks out and spread.
But after the declarations, the investors, who have taken advantage of inside information, sell off their holdings for capital gains, he added.
Share prices of many companies, such as Apex Foods, Gemini Sea Food, and Intraco Refueling Station rallied before the recent dividend declarations and reporting of hefty growth in earnings, but the upward trend did not sustain after the disclosures.
In some cases, stocks became the worst loser on the Dhaka Stock Exchange the day investors received marker information about that particular company.
Apex Foods registered 148 per cent year-on-year growth in EPS (earnings per share) and recommended 20 per cent dividend for the fiscal year 2021-22.
The company's share price jumped 46.46 per cent in 11 sessions executed on the DSE in the run up to the dividend declaration on October 17. That day the company became the day's worst loser.
Similarly, Gemini Sea Food was the top loser on the day it disclosed a remarkable 1635 per cent growth in EPS for the FY 2021-22 compared to the previous year. Its share price declined 14.18 per cent in a single day.
During the period of abnormal price hikes, the premier bourse made queries to know whether there was any undisclosed price-sensitive information behind the price movements.
The companies ruled out any such possibility.
Earlier, the securities regulator took measures against many investors for breaching insider trading rules.
The Bangladesh Securities and Exchange Commission (BSEC) in August 2020 imposed a large number of penalties on BBS Cables and its associates for such violations.
In October 2020, the securities regulator also fined a sponsor of Prime Islami Life Insurance for a similar offence. A director of Pubali Bank had also been fined in January 2018.
Mohammad Rezaul Karim, an executive director of the securities regulator, said that on many occasions investors offload their shares, having been disappointed by the dividends declared.
The securities regulator had carried out investigations on abnormal price hikes of stocks, he said, adding: "After the year's closing, the securities regulator will keep watch on many companies."
