Professional Documents
Culture Documents
Insider Trading SEBI
Insider Trading SEBI
Make Profits - James OHagan made a profit of more than $4.3 million Avoid Losses - Martha Stewart avoided a loss of $45, 673
Tipee
Accidental Insider
PRIMARY INSIDERS
Classic Corporate insiders Directors Officers Shareholders holding substantial no. of shares (10%)
PRIMARY INSIDERScontd.
Constructive insiders Persons who are not employed by the corporation but receive confidential information from a corporation while providing services to the corporation. e.g. professional advisers, lawyers, investment bankers
SECONDARY INSIDERS
Tippee Tipper
material price sensitive information
Tippee
No direct fiduciary relationship to the company or its shareholders Tippee assumes a fiduciary duty to the shareholders of a corporation not to trade in securities if the tippee knows or should have known that the tipper has breached a fiduciary duty
Dirks v. SEC
Some jurisdictions cover only individuals Subjecting corporates to sanctions motivates them to introduce higher standards
Misappropriation Theory
Anyone who misappropriates (steals) information from their employer and trades on that information in any stock (not just their employers stock) is guilty of insider trading Misappropriation theory is a part of US Law Can also be found in Indian Law (Code for Prevention of Insider Trading by specified intermediaries) US v. James OHagan
Other entities
Initial statement of holding Periodic statement of holding
1. By transmission of the information to a news agency 2. By dissemination of the information by the stock exchange
Limited access to price sensitive information Need to know basis Chinese Wall
Separate inside areas from public areas Bringing over the wall
Restricted listed only applicable to specified intermediaries Pre-clearance of trades All directors / officers / designated employees to pre clear their trades Pre-clearance to be given by Compliance Officer Valid for one week
Legal Insider Trading - Trading after due disclosures - Trading by accidental insiders - Trading by tippees without a fiduciary duty Insider Trading - Trading in violation of the rules & regulations - Trading by tippee knowing that the tipper is violating a fiduciary duty
A Companys information is its own propertyothers should not profit from it It disrupts market efficiency Unfair competition to speculators outside the company It undermines investor confidence in the fairness and integrity of the securities market
US
Penalties
Civil Penalties 4. 3 times profit made/loss avoided 5. Controlling persons -3 times profit made/loss avoided or $1 million (higher) 6. Injunctions Administrative Penalties Cease and desist order
Penalties
Criminal Penalties
Natural persons - Fine upto $5 million and/or 20 yrs imprisonment Other entities fine upto $25 million
Penalties
In India for violation of code of conduct By the organisation Disciplinary action Wage freeze Suspension Monetary penalty By SEBI Unlimited Powers ANY action
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