ABHIMANU IAS SPEAKS

INSIDER TRADING

 MEANING

•   Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by individuals with potential access to non-public information about the company.

 INSIDER TRADING IN INDIA

• In India, insider trading is prohibited under a Sebi regulation, titled Securities and Exchange Board of India ([Prohibition of] Insider Trading) Regulations, 1992.

•  According to Sebi, an "insider" to a company is a person who is or was connected with the company, or is deemed to have been connected with the company and is expected to have access to unpublished price-sensitive information about the company.
• It also includes a person who has received or has had access to such unpublished price-sensitive information as an insider. Trading in shares with such information is insider trading. 

 INSIDERS

•  Those who could be considered as insiders include board members and top officials in a company, auditors, merchant bankers, brokers, an official or a fund manager with an investment company which is a shareholder in the company, etc. Close relatives of these people are also considered insiders. 

 VIOLATIONS OF RULES

• Sebi can initiate criminal proceedings for violations of insider trading rules, although there are very few instances.
•  One of the most famous insider trading cases in India is Hindustan Unilever's (then HLL) purchase of 8 lakh shares of Brooke Bond Lipton India days before the announcement of the merger of the two. In that case Sebi, in 1998, had initiated criminal proceedings against HUL and some of its top executives. 
• The most common punishments that Sebi imposes for insider trading are monetary and prohibitive in nature.

In India, enforcement against insider trading is not very effective. However, lately Sebi has been taking steps using market data analytics tools and acting on leads from other government agencies like the I-T department, Enforcement Directorate, CBI and others to crack down on errant market players. The market regulator has set up an integrated market surveillance system (IMSS) and a data warehousing and business intelligence system both together capable of generating and recognizing patterns from stock prices and volumes to detect crimes like insider trading, front-running , etc.