Sharp gains in 3 shares hint at insider trading

Market source: The problem is that there is a feeling that there is no deterrence.

Sharp gains in the shares of three small-cap shares ahead of important announcements by the companies are nothing unusual, but three cases recently highlighted the phenomenon, and point to possible use of inside information. In all three cases - BiolineRX Ltd. (TASE:BLRX), Calanit Carmon Software Services Ltd. (TASE: KLNT), and Ceragon Networks Ltd. (Nasdaq: CRNT; TASE:CRNT) - ordinary investors learned of material information about the companies only after their share prices soared.

On Sunday last week, BiolineRX's share price jumped 11.1% without any announcement by the company or update about its condition. Only on the next trading day, did the drug development company announce that it was in talks with a US pharmaceutical company to license BiolineRX treatment for schizophrenia, which is under development.

Also on Sunday last week, Ceragon's share price rose 8.2%, without any announcement by the company. On Monday, the wireless backhaul solutions provider announced a $9 million follow-on contract with a Philippine carrier.

The case of Calanit-Carmon is even more extreme. The share rose as much as 20.5% last Thursday, but only 90 minutes before the close did the company announce that its controlling shareholder was in advanced negotiations to sell the controlling interest in the company at a 33% premium on Thursday's opening price.

The following Sunday, Calanit-Carmon announced that the deal had been signed. The company builds and operates technology products and services support centers.

Over the years, the ability of the Israel Securities Authority, which is supposed to protect the shareholders' interests, to oversee and monitor extraordinary fluctuations in companies' share prices has substantially improved. It has upgraded its ability to deal with inexplicable movements in shares through the use of technological systems that can quickly analyze transactions.

These capabilities reached a peak with the launch of the Securities Authority's own business intelligence (BI) system, which gathers and cross-analyzes trading data. The system spots unusual movements and can generate reports and cross-sections of movements and changes in share prices.

Nonetheless, it appears that despite all these means, the Securities Authority's deterrence ability is still limited, and so long as that is the case, the average investor will continue to be notified too late about important announcements.

Clal Finance market maker operations manager Yaron Goldberger said, "Sharp rises in share prices before an announcement is nothing new. Every day it is possible to see shares soaring tens of percent on the basis of prior information, and the reason for the surge in learned by general investors only a few hours or days later, with the publication of an official announcement."

Goldberger added, "Many parties both within a company and outside of it are involved in important deals and announcements, so it is hard to prevent leaks. There is always someone who will try to make a quick profit on the assumption that they won't get caught. More severe punishments can certainly reduce this."

A source active in the market said, "The problem is that there is a feeling that there is no deterrence. It seems that the examination of unusual deals takes a long time, and even then the penalties are fairly light. If someone who obtains information knows that the penalty will be swift and severe, he'll think twice before rushing out to buy shares. Instead, he sees a chance for a quick profit at little risk."

BiolineRX's share price fell 6.4% in early trading today to NIS 3.79, giving a market cap of NIS 508 million, following yesterday's fall of 9%. The share rose nearly 20% last Sunday and Monday, and fluctuated quite widely for the rest of the week.

Ceragon's share price fell 2.5% on Nasdaq yesterday to $8.28, giving a market cap of $284 million, and fell 3.7% in morning trading on the TASE today to NIS 31.66.

Calanit-Carmon's share price fell 1.6% in morning trading on the TASE today to NIS 0.25, giving a market cap of NIS 33 million, after rising 0.8% yesterday, falling 6.3% on Sunday, and rising 11.1% on Thursday. Turnover on Sunday and Thursday exceeded NIS 200,000, an extraordinary level for the share.

Published by Globes [online], Israel business news - - on June 22, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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