Legal Perspective: Laws related to curbing insider trading very clear

All regulations relating to securities markets are very clear regarding the prohibition of insider trading.

This clear stand is based on the philosophy of giving equal information to all investors.
The laws regulating the securities market in the UAE clearly prohibit insider dealing at the cost of other investors.

Collective or pool investment schemes marketed to the public at large are always subject to the toughest regulation because they affect many.

They are seen by regulatory bodies as more risky compared to single or non- collective investment schemes.

The statutory definition of a collective or pool investment scheme normally covers any form of securities whereby investors in a plan share the benefits of an enterprise designed to make profits.

Such schemes generally include unit trusts, mutual funds and open-ended investment companies.
By 'open- ended' companies we mean those where the shares are redeemable as opposed to "close-ended" where they are not.

The advantage is that the investors can collectively pool their funds so as to obtain professional management of the single or combined portfolio and obtain a large diversification.

Due to these advantages, these are a favoured investment medium and, at the same time, a substantial capital provider for enterprises.

But some strongly criticise the schemes and are very suspicious about it for certain reasons:
- The investor is not in direct control of the ultimate value, he does not have direct voting rights in the underlying securities, he relies on somebody to collect the income and is completely dependent upon the investment experience of the pool manager who may, because he is not investing his own money, be inclined to speculative securities or to trade on margin.

Holders of schemes can redeem their units and this action could result in an controlled reduction of capital.

- In certain instances it has been known that those managing the pool investment schemes may be tempted to use or benefit from them for their own benefits, such as, by buying performing securities for themselves and by dumping poor securities in the pool.

This could happen by overcharging expenses and fees, by generating excessive commission for themselves in their capacity as brokers, by churning securities in the fund and by selling to the pool securities of their related companies.

An important distinction between unit thrusts and open- ended investment companies is that the protection granted to companies by the company law applies to investment companies.
Companies are subject to auditing and registration requirements whereas this is not exactly the case in relation to unit trusts.

On the other hand both unit trusts and open-ended investment companies enjoy the same characteristics that investors can redeem their shares at any time.

It is important to mention that the participants in collective schemes do not have day-to-day control over the management of the property in question.