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INSIDER TRADING
Insider Trading is trading of a public company's stock or other
securities i.e. as bonds or stock options by individuals with access to
non-public information about the company. Normally, trading by
corporate insiders such as officers, key employees, directors, and large
shareholders is permitted, if this trading is done in a way that does not
take advantage of non-public information. But, the term insider trading
is frequently referred to a practice in which an insider or a related party
trades based on material non-public information obtained during the
performance of the insider's duties at the company, or otherwise in
breach of a fiduciary or other relationship of trust and confidence or
where the non-public information was misappropriated from the
company fraudulently.
Definition:
Insider Trading is the buying , selling or dealing in securities of a listed
company by a director , member of management , employee of the company
, or by any other person such as internal auditor , advisor , consultant ,
analyst etc., who has knowledge of material inside information which is not
available to general public.
Insider:
According to the Indian stock market regulator, SEBI, "insider" means
any person who, is or was connected with the company or is deemed
to have been connected with the company, and who is reasonably
expected to have access, connection, to unpublished price sensitive
information (UPSI) in respect of securities of a company, or who has
received or has had access to such unpublished price sensitive
information. Inside unpublished price sensitive fact is inside
information which only a select few persons know because of their
closeness to the company and which has not been publicly
circulated.
Categories of insider:
There are two categories of Insiders i.e.
(I)Primary Insiders who are directly connected to the company.
Case Study
Dilip pendse v. Sebi
This was perhaps the simplest case of Insider Trading which was handled by
SEBI and it had no difficulties in punishing the offenders. The facts were that
Nishkalpa was a wholly owned subsidiary of TATA Finance Ltd (TFL), which
was a listed company. D. P. was the MD of TFL. On 31/03/2001, Nishkalpa had
incurred a huge loss of Rs. 79.37 crore and this was bound to affect the
profits of TFL. This was basically the unpublished price sensitive information
of which Pendse was aware. This information was disclosed to the public only
on 30/04/2001. Thus any transaction by an Insider between the period
31/03/2001 to 30/04/2001 was bound to fall within the scope of Insider
Trading. DP assed o his information to his wife who sold 2, 90,000 shares of
TFL held in her own name as well as in the name of companies controlled by
her and her father-in-law. It was very easy for SEBI to prove Insider Trading in
this cake walk or vanilla case.