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When corporate insiders like officers, directors and employees, auditors, appointed counsels, trade stock in their own companies, while in ownership of the material, non-public information about the Company/or its shares, they indulge themselves in “Insider Trading”.
Insider trading is primarily the act of dealing in securities with the advantage of having access to unpublished information which when published would impact the price of securities in the market. On the other hand, insider trading can be illegal or legal depending on when the insider makes the trade. It is unlawful when the material information is still not disclosed and is non-public.
Following are the regulatory authorities:
Has lay down specific provisions to stop Insider Trading.
“Insider trading is highly discouraged by SEBI”
Employees, including Directors and key managerial personnel, should be aware that if they have inside information about the Company they work for, they must altogether avoid doing trading or advising anyone to trade in the shares or securities of that Company during the time such information remains unpublished, as this is ‘Insider Trading’ and hence is a punishable offence.
Unpublished Price Sensitive Information isany information relating to the company or its securities, directly or indirectly, which is generally not available. If it gets open, then it is likely to affect the price of the securities. It may include:
Any person shall not:
An insider shall not trade in securities, which are listed or proposed to be listed on the stock exchange when in possession of unpublished price sensitive information.
An insider has to submit a trading plan in advance to the compliance officer for his approval. The compliance officer is also empowered to take additional undertakings from the insiders for approval of the trading plan. Such trading plan on approval will also be disclosed to the stock Exchanges, where the securities of the company are listed.
The disclosures of trading in securities shall also comprise trading in derivatives of securities if allowed under law. Such disclosure shall be preserved for five years.
Disclosure requirement can be in follwing two stages:
The penalty for violating this requirement includes:
India has put great hard work in the enactment of SEBI Insider Trading regulations to be at parity with international values of Insider Trading Laws. With the increase in trading of share market, bond market, derivative market, there has been a development in one particular form of trading called Insider Trading. Hence, it is of utmost importance to regulate such improper and fraudulent acts for the growth of the economy and the financial market as a whole. For more information related to Insider Trading, contact the team of experts at Enterslice.