FSB probes Discovery for possible insider trading

© Andriy Popov 123RF.com

Discovery was among the new cases on the board's list of insider trading investigations released after its meeting last week.

The FSB, though, is not saying much about its investigation into Discovery.

"We are prohibited, in terms of the secrecy provisions of the FSB Act, to disclose specific details pertaining to our investigations," says Solly Keetse, the head of the department.

"However, the JSE performs market surveillance with regards to trades on its market."

JSE probe

Peter Redman, senior technical advisor at the JSE's surveillance department, says Discovery had released a trading statement on 17 February, followed by a 5% drop in its share price.

"Routinely, whenever an announcement by a listed company proves to be price sensitive, we examine trading ahead of such an announcement," he says. "The price of Discovery shares had dropped on February 16 2016 by 5,5%, so we gave details of who had traded on that day to the directorate of market abuse at the FSB for them to investigate possible insider trading."

Keetse says details of the investigation would be disclosed only if his department referred the case to the FSB's enforcement committee, which would then publish its determination on the FSB website.

Drop in share price

"All we can confirm at this stage is that we are investigating possible insider trading in the Discovery shares prior to the SENS announcement of February 17 2016."

On that day, Discovery, which has traditionally posted strong growth in earnings, told the market that it expected headline earnings to decline more than half on the previous comparative period when it reported its results for the six months to December.

The insurer was trading at R128.78 a share on February 15, two days before it released the trading update. The next day, still ahead of the trading update, the share declined to R121.80.

Discovery's share extended its losses after the release of the trading update, shedding 10,34% compared with its closing price on February 15.

Discovery always acted with integrity

But PSG Wealth portfolio manager, Adrian Cloete, believes there was no leak, attributing the share price movements to concerns about global growth, and disappointment in Discovery's expected normalised headline earnings-pershare range of 0%-5%.

"As Discovery has an excellent track record of strong growth in earnings, the market rated it on a high multiple and, therefore, when Discovery guided to lower-than-usual normalised (headline earnings per share) growth, the share price fell on the day," he says."In my view, Discovery's management always acts with the (utmost) integrity."