In Black’s Law Dictionary insider trading is defined as the use of material non-public information in trading the shares of the company by a person who owes a fiduciary duty to the company or corporate insider.
Insider trading is generally perceived in a negative way. Insider trading does not mean any illegal conduct, although it covers both legal as well as illegal actions. In a nutshell insider trading can be defined as the buying , selling or dealing in securities of a listed company it’s director , member of management , employee of the company , or by any other person such as advisor consultant, internal auditor , analyst who has knowledge and information which is not available to general public.
Nonetheless, in the last two decades India has witnessed many instances of people manipulating every loophole in the stock market for their enormous individual benefit. At times an insider of a company shares sensitive confidential information to buy or sell the companies securities thereby making a personal profit. This act is may lead to serious legal and moral ramifications
Two most important terms of insider trading laws are:
1. Price Sensitive Information: Is that information which directly or indirectly related to a company and can materially affect the price of securities of the company.
2. Price Sensitive Information: Price Sensitive Information should be handled on a need to know basis and should only be disclosed to those men within the company who need the information to perform their duty. The price sensitive information must be maintained confidentially by all employees and directors and must not be passed on to any person directly or indirectly for the purchase or sale of securities.
Securities and Exchange Board of India (SEBI):
It is supervisory body of all the stock exchanges in India. Its duty is to protect the interest of the investors in the securities market and to regulate the stock market through regulations as it deems fit. SEBI has several functions like
Protective functions: SEBI works to protect the interest of investor and provide the safety.
Developmental functions: SEBI performs this function to increase the business in stock exchange and to promote and develop activities.
Regulatory functions: SEBI controls the regulation in the stock exchange.
Although India reportedly has a lower rate of fraud perpetrated by company insiders still Glove relationship between the employee and third party involves 84% of fraud. In India even now many company insiders indulges in rampant insider trading for personal gains and does not provide any help to the shareholders.
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