Would you be happy if you saw that the directors of a listed company had apparently purchased shares at an advantageous price? In other words had purchased shares in the market at a price that was not available to anyone else?
On Thursday the 17th April, I chose to purchase 3,000 shares in Chrysalis VCT. This followed an announcement by the company on the 14th April that the company had achieved two successful exits from portfolio companies which had increased the company’s Net Asset Value (NAV) to 96.5p (an uplift of over 15%).
This is of course a typical VCT where trading in the shares is extremely thin, and even more so than most because the company has a policy of not doing routine market buy-backs. As a result the share price is usually on a large discount to NAV – for example, 33% on the mid-price at the time of writing – and there is usually a large bid/offer price spread. The spread quoted on the 17th April was 60-70p (all day so far as I am aware).
Well I managed to purchase the 3,000 shares at about 8.50 am via Charles Stanley Direct, without manual intervention, at a price of 66p which I was not too disappointed with as it was nearer the mid price point than the quoted offer price.
I was rather surprised to see an RNS announcement later in the day that four directors had purchased a total of 70,000 shares in the company all at 61.5p. That included 27,000 shares purchased by Chairman Peter Harkness. These were in fact apparently reported as taking place at 11.58 am as one single trade, but as a “delayed” trade on the Stock Exchange trade reporting system – but that normally means they have simply been delayed by up to an hour rather than reported within a few minutes as normal.
Having seen the RNS announcement, I contacted another broker (Stocktrade part of Brewin Dolpin) after 4.00 pm via telephone and asked them to get a dealer to talk to the market maker and request a price for the purchase of 10,000 shares. The best they could obtain was 69p, which I declined.
So it would seem that the directors, or someone acting for them, managed to obtain shares at a price not available in the open market on that day. Of course it is possible that they obtained the shares not from a market maker but from some other source. It’s also worth noting that sometimes holders of VCT shares or their executors have large numbers of shares which they wish to sell and which the market maker cannot easily absorb. That might have been brought to the attention of the directors or the Company Secretary. But is it appropriate for Directors to take advantage of their position in this way if that is what happened?
Note that I experienced a similar situation some years ago with Northern Venture Trust – another VCT. It did not happen there again after I complained.
I have written to the Chairman asking for an explanation of these events. It is surely wrong that directors can purchase shares at an advantageous price as against anyone else if that is in fact what happened.