Full disclosure principle states that an accurate and complete information that could have a material impact on the financial statements and operating performance of companies should be included in public filings to ensure that information asymmetry between the company insiders such as the directors, managers and shareholders, and company outsiders such as the lenders, creditors and investors would be mitigated if not eliminated. Companies are required to practice corporate governance and transparency that promotes cooperation, collaboration and communication among the concerned parties supported by a sequence of protocols in delivering and increasing value to shareholders. But we should not depend on the strong adherence of the company insiders because the position that they hold in an organization make available to them material non-public information that could have an impact on the share prices of companies in which they could make the most of to have an undue advantage in realizing an above average investment return. Although morality cannot be legislated, behavior can be regulated so the private sector should endorse the best possible solution to the market predicament while the public sector should enact relevant laws to regulate the behavior of company insiders. Whether or not the market structure is competitive or non-competitive, insider trading can happen in an idealized competitive economy. In this regard, the Securities and Exchange Commission warned companies that the electronic submission of reportorial requirements would be considered accurate and complete while errors would be punished with corresponding penalties. The revised Corporation Code of the Philippines noted that companies including their authorized representatives who submitted the erroneous and deficient information would be held liable for the corresponding penalties imposed ranging from P20,000 to P400,000. We do know that the revision of the Corporation Code of the Philippines by the lawmakers and the implementation of the electronic submission of reportorial requirements by the regulators would benefit the shareholders but what we do not know is whether the corresponding penalties are more than enough to discourage violations and encourage compliance. In our opinion, the corresponding penalties could be described as negligible considering that the amount would not make a dent on the financial statements and operating performance of most companies. Perhaps it would be best for the lawmakers and the regulators to increase the corresponding penalties to unreasonable level or else non-compliant companies including their authorized representatives would continue to submit erroneous and deficient information to pump and dump the share prices for personal financial gain at the expense of the unsuspecting market participants.
