The presentation discussed insider trading, including its definition, forms, why it needs to be curbed, regulatory aspects, and case studies. Key points included defining insider trading as using non-public price sensitive information for personal gain. Forms of insider trading include employees of companies and government agencies trading based on private information. Regulatory bodies like SEBI aim to make markets fair and transparent by prohibiting insider trading. Case studies examined real insider trading incidents and their outcomes.
The presentation discussed insider trading, including its definition, forms, why it needs to be curbed, regulatory aspects, and case studies. Key points included defining insider trading as using non-public price sensitive information for personal gain. Forms of insider trading include employees of companies and government agencies trading based on private information. Regulatory bodies like SEBI aim to make markets fair and transparent by prohibiting insider trading. Case studies examined real insider trading incidents and their outcomes.
The presentation discussed insider trading, including its definition, forms, why it needs to be curbed, regulatory aspects, and case studies. Key points included defining insider trading as using non-public price sensitive information for personal gain. Forms of insider trading include employees of companies and government agencies trading based on private information. Regulatory bodies like SEBI aim to make markets fair and transparent by prohibiting insider trading. Case studies examined real insider trading incidents and their outcomes.
Presented by – Prince Raj & Team P R E S E N T E D TO - R A K E S H S I R
Structure of Presentation:- Objectives of Study Introduction Forms of Insider Trading Why to curb Insider Trading? Regulatory aspects of Insider Trading Case Studies Objectives of Study:- To know the To analyse the To suggest basic role of SEBI in ways to concepts of minimizing minimize and insider such Insider eliminate trading. Trading cases. cases of Insider To analyse Analysing the Trading. different impact of cases of Insider Insider Trading on the Trading. stock market. Introduction:- Insider trading is defined as using unpublished price sensitive information to deal in securities of a company for one’s own benefit. In India, insider trading was earlier governed by SEBI through its Securities And Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992. However, in November 2014,SEBI issued new Regulations called Securities And Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 for prohibiting the insider trading (last amended on AUG Under these Regulations an “Insider” is defined as: "any person who is (i) a 05, 2021). connected person ,or ; (ii) in possession of or having access to unpublished price sensitive information (UPSI)” The new regulations have been aimed at making the Indian market more transparent and provide a level-playing field to all traders and investors Forms of Insider Trading:- Corporate employees often Members of Employees or members of publicly share information within their an traded companies are in own circles that is not shared organisation key positions to access with Stock Market and the information that would not general public. Forms otherwise be available to the Friends/famil of Profession general public. al/consulta y of Insider nts employee’s Trading Officials of different government agencies can gain access to Bankers, lawyers, paralegals, and confidential information through Government brokers are but a few of the the execution of their duties. officials consultants who have access to They may conduct insider trading confidential document of their with this information. corporate clients. Why to curb Insider Trading? Prohibition of Insider Trading is required to make Securities market:- Fair & Transparent. To have a level playing field for all the participants in the market. For free flow of information and avoid information asymmetry. To prevent insiders from making huge profits or save tremendous loss when the public cannot react to this information. Regulatory aspects of Insider Trading:- What is UPIS (Unpublished Price Sensitive Information)? :- The price sensitive information is defined in Regulation 2(h)(a) of the prohibition of Insider Trading “ It means any information which relates directly or indirectly with the company & which if published is likely to materially affect the price of the security’s Unpublished information means information which is not of the company”. published by the company or it’s agents. Speculative reports in print or electronic media shall not be considered as published information. Informations which are deemed to be price sensitive:- Periodical Financial Results. Intended declaration of the dividends( both interim and final). Issue of securities or buy back of securities. Any major expansion plans or execution of new projects. Amalgamation & mergers or takeovers. Disposal of the whole or substantial part of the undertaking. Any significant changes in the policies, plans or operations of the company. Regulation for prohibition of Insider Trading:- Regulation 3:- No insider should deal in security while possession of UPSI. He/she should not communicate to procure the UPSI to others. Regulation 3B:- This regulation enables a company to defend itself in a proceeding involving insider trading if it can prove that there is a “Chinese Wall” within the company. Disclosures for prohibition for Insider Trading(under regulation 7):- Initial disclosures:- Buying the stake greater than the 5% of the paid up capital of the company, the acquirer should inform the Stock Exchange within The newtwo working director days of should acquiring disclose thetrade all its stake. position in equity or derivatives within two working days of his appointment. Continuous disclosures:- If the shareholder holds more than 5% and changes his holding by 2% or more. Disclosures for prohibition for Insider Trading(under regulation 7) continued:- Continuous disclosures:- Any change of promoter/director/officer beyond Rs 5 lac or 25000 shares or 1% of total shareholding or voting rights whichever is lower, it must be disclosed. Additional disclosures:- All holdings in securities of that company. Periodic statements of all transactions. Annual statement of all holdings. Investigation of Insider Trading:- Regulation 4a deals with the power to make inquiries and inspection. Sebi can also appoint outside auditor for the enquiry and auditing, and the auditor would have all the power that SEBI possess. Before undertaking any investigations SEBI shall give a reasonable notice to insider for that purpose. Where SEBI is satisfied that in the interest of the investors or in public interest no such notice should be given, it may by an order in writing direct that the investigation be taken up without any notice. SEBI’S power to make inquiries and inspection:- Regulation 4a:- If SEBI suspects that any person has violated any provision of these regulations , it may make inquiries with such persons. The SEBI may appoint officers to inspect the books and records of insider(s) for the purpose of inspection. The SEBI can investigate and inspect the books of account, either records and documents of an insider on prima facie. SEBI can investigate into the complaints received from investors, intermediaries or any other person on any matter having a bearing on the allegations of insider trading. Penal provision’s for Insider Trading :- INDIA:- Civil Proceedings : Fine of up-to RS250 million or three times the amount of profit made or loss avoided out of Insider Trading. Under SEBI (Prohibition of Insider Trading) Regulations, 2021. BRITAIN:- Criminal and Civil Proceedings : Maximum allowable prison sentence of 7 years or unlimited fine. Under Financial Services STATES:- UNITED & Markets Act, 2000. Criminal and Civil Proceedings : Maximum allowable prison sentence of up to 20 years and fine up to three times of profit made or loss avoided. Under Exchange Act,1934. Practical cases studies on Insider Trading:- a). HLL and BBLIL Merger Case:- b). Rakesh Agarawal v/s SEBI:- HLL-BBLIL Merger Case:- In August 1997, SEBI charged HLL of insider trading by using Unpublished Price Sensitive Information. HLL bought 8 lakh shares of BBLIL from UTI at Rs 350.35 per share (At a premium of 9.5% of the ruling market price of Rs320) just two weeks before the formal announcement knowing that the HLL and BBLIL werethat SEBI held going HLLtowas merge. using unpublished , price sensitive information to trade , and was therefore guilty of Insider Trading. SEBI directed HLL to pay UTI Rs 3.4 Crore in compensation, and also initiated criminal proceedings against the five directors of HLL and BBLIL. HLL-BBLIL Merger Case(continued):- HLL appealed against the SEBI verdict to the Union Ministry of Finance. HLL contended that before the transaction, the merger was the subject of wide speculation by the market and the media. After the formal announcement, press articles mentioned that the merger was no surprise to anyone. HLL pointed out that the share price of BBLIL moved up from Rs 242 to Rs 320 between January and March, before the transaction, indicating that the merger was “ generally known information”. HLL contended that to be considered as an insider, it should have received information “by virtue of such connection” to the other company. HLL-BBLIL Merger Case(continued) According to HLL, it was :- an initiator and the transferee, and it was the “primary party” to the merger and no primary party to the merger can be considered an insider from the point of view of Insider Trading. HLL argued that only the information about the swap ratio could be deemed to be price-sensitive and that this ratio was not known to HLL or its directors before the purchase of shares from UTI. HLL also argued that the news of merger was not price-sensitive as it had already been announced by the media before the official announcement and claimed that the purpose of the purchase of shares In was tothe July 1998, enable Uniliver Appellate to acquire Authority 51%Finance of the shares Ministry of BBLIL. dismissed the SEBI order. Rakesh Agarwal v/s SEBI :- One of the most famous case highlighting the vulnerability of the SEBI’S Rakesh 1992 regulation. Agarwal, MD of ABS Industries LTD. was involved in negotiations with Bayer A.G, regarding their intention to takeover ABS. As per SEBI, Rakesh Agarwal had access to the Unpublished price-sensitive information. SEBI alleged that prior to the announcement of acquisition, Rakesh Agarwal, through his brother-in-law, had purchased shares of ABS and tendered the said shares in the open offer made RakeshbyAgarwal Bayer. contended that he did this in the interest of the company. Pursuant to Bayer’s condition to acquire at least 51% shares of ABS, he, through his brother-in-law bought the shares and sold them to Bayer. Rakesh Agarwal v/s SEBI (continued) The SEBI directed:-Rakesh Agarwal to “deposit Rs 34,00,000 with Investor Education & Protection Funds of Stock Exchange, Mumbai and NSE”. SAT (Securities Appellate Tribunal) held that the SEBI order directing Agarwal to pay Rs 34 lakh could not be sustained, on the grounds that Rakesh Agarwal did that in the interests of the The company. matter was then settled on consent basis and Mr. Rakesh Agarwal paid Rs 48 lakhs. Challenges in front of SEBI in
:- SEBI faces several challenges in establishing links and procuring
proof while probing insider trading cases, due to which investigation into such cases takes much longer time than in other cases oftrading The insider market ismanipulation. mainly carried out in a clandestine manner and the wrongdoers typically use proxies for communicating the relevant information and for executing the trades. The Inadequate data non-availability to prove and of telephone connections. e-mail records. Multiple layer of bank transaction , inadequate info in bank statements. Conclusion :- Despite having experience and advancement in technical finesse SEBI could not untangle the corruption web of insider trading in Indian stock markets. Are they simply Incompetent are they diligently insincere ? I would say both. It took SEB It till the year 2008-09 to realize that the term “insider trading” did not literally mean “insiders with in the company” who traded the company’s shares based on information, but actually mean biased trades by anybody – inside or outside the company – who was in the know of “insider” While SECinformation keeps comingabout out the withcompany that had stock market the capacity reports on each to influence insider stockthere’s trading, prices something more that SEC does, the absence of which should make SEBI question itself. And that is, an investigation of SEC’s own processes on where it went wrong
Order in Respect of (1) Shayona Petrochem Limited and Its Directors Viz. (2) Mr. Lalit Bhagwandas Patel, (3) Mr. Kirit Amichand Patel and (4) Mr. Shashikant Mohanlal Doshi