1.What is Insider Trading?
Insider trading is defined as a malpractice wherein trade of a company's securities
is undertaken by people who by virtue of their work have access to the otherwise
non public information which can be crucial for making investment decisions.Insider
trading refers to the practice of purchasing or selling a publicly-traded
company’s securities while in possession of material information that is not yet
public information. Material information refers to any and all information that may
result in a substantial impact on the decision of an investor regarding whether to buy
or sell the security.
• By non-public information, we mean that the information is not legally out in the
public domain and that only a handful of people directly related to the information
possess. An example of an insider may be a corporate executive or someone in
government who has access to an economic report before it is publicly released.
2.What are the most important terms and features in
relation to Insider Trading?
Instrumental to the functioning of an insider trading regulation is the definition of an
‘insider’. Under the Regulations, an ‘insider’ has been defined to mean any person
who is (i) a connected person; or (ii) in possession of or having access to unpublished
price sensitive information (“UPSI”). Every connected person is an ‘insider’ under the
Regulations. An outsider i.e. a person who is not a ‘connected person’ would qualify
as an ‘insider’ if such person was ‘in possession of’ or ‘having access to’ UPSI. The
Regulations, whilst not deviating drastically from the definition under the 1992
Regulations, have strengthened the definition of who an ‘insider’ is by expanding the
definition of ‘connected person’.
3. What are the legal provisions to prohibit Insider
Trading?
CODE
The Code shall be called “Code for Trading in the Securities of Amber Enterprises
India Limited by an Insider (Code). The Code will come into force with immediate
effect.
PROHIBITION AND EXCEPTIONS TO INSIDER TRADING IN INDIA
The relevant provisions which govern insider trading in India are Section 195[8] of
the Companies Act,2013 along with section 12A[9] and 15G[10] of the SEBI Act,
1992. In addition to these provisions the primary regulations which govern insider
trading in India are the SEBI (Prohibition of Insider Trading) Regulations, 2015. The
prohibition and exception/defenses to insider trading can be found in the SEBI
(Prohibition of Insider Trading) Regulations, 2015.
Section 12A(d) of the SEBI Act.1992 expressly prohibits insider trading[11] while
section 15G imposes a penalty of a sum ranging between ten lakhs to twenty-five
crore rupees or a penalty of a sum which is three times the amount of profit made,
whichever is higher[12]. Section 195 of the Companies Act, 2013 too prohibits insider
trading in addition to defining what it is and states that a punishment of five years of
imprisonment and/or a fine up to rupees twenty-five crores maybe imposed on the
defaulter.
Penalty for Insider Trading
• Rs. 25.00 Crore or 3 times the
profit earned, whichever is
higher
4. Give some examples of Insider Trading of our
Country.
1.The Securities and Exchange Board of India (SEBI) has moved to settle an
'insider trading' case involving ace investor Rakesh Jhunjhunwala, wife Rekha
Jhunjhunwala and eight others who were accused of unusual dealing in shares of
Aptech Computers
2.KPMG India has terminated the services of Saumil Shah, one of its partners.
The consulting firm took this step after Shah was named in an insider trading
investigation at Magma Fincorp.
3.The Securities and Exchange Board of India(Sebi) has barred 15 entities and
individuals, including some top executives of foreign and domestic broking houses
like UBS India and Edelweiss Broking, for allegedly indulging in insider trading in
the shares of
Zee Enterprises
NSE 0.22 % in August, 2020.
The regulator has also impounded the alleged ill-gotten gains of Rs 23.84 crores from
these entities and individuals.
4.Markets regulator SEBI on Friday ordered impounding of alleged unlawful
gains of Rs 87 lakh made by Indiabulls Ventures's former non-executive director
and her husband in an insider-trading case.
5. How do you know that it is not Insider Trading?
