Is proxy trading allowed?

PETALING JAYA: Questions are being raised on whether it is legal for a person to use his account to buy shares on behalf of his relatives or acquaintances.

It is an open secret that many individuals have been trading shares on Bursa Malaysia via “proxies”.

Individuals can use proxy accounts to trade shares in order to hide their wealth or engage in insider trading, among other reasons.

However, such action may be in breach of Section 25(4) of the Securities Industry (Central Depositories) Act 1991.

The Act provides that any securities account opened must be in the name of the beneficial owner or authorised nominee.

Violation of Section 25 may result in a person being fined not exceeding RM3mil or an imprisonment of not more than 10 years, or both.

It is noteworthy that the Securities Commission Malaysia (SC) has been clamping down on breaches of Section 25(4), although it is unclear how many individuals have been charged to date.

In May 2011, an individual was fined RM25,000 for allowing another person to use her central depository system (CDS) account at Arab-Malaysian Securities Sdn Bhd, now known as AmInvestment Bank Bhd.

The account was used to trade in Nexnews Bhd shares for the period between May 7, 2007, and May 10, 2007.

The individual was found guilty of breaching Section 25(4) of the Securities Industry (Central Depositories) Act 1991.

The practice of using proxy accounts is also found in other countries, and the respective market regulators have taken actions against such practices.

For example, the Securities and Exchange Board of India has banned a stockbroking firm’s dealer and five associates in 2020 for using “mule” or proxy accounts to engage in a front running operation.

Front running is the act of illegally buying or selling of shares ahead of a substantial order by a client of a broking firm.

There have been cases of stock manipulation overseas when mule or proxy accounts were used.