Project Report

(Submitted for the Degree of B.Com. Honours in Accounting & Finance under the
University of Calcutta) (6th Semester)

Title of the Project

“INSIDER TRADING”

Submitted by:

Name of the Candidate: DEEPAK RATHI

Registration No. : 017-1111-0156-18

Name of the College: THE BHAWANIPUR EDUCATION SOCIETY COLLEGE.

College Roll No.: 181017-21-0542

SUPERVISED BY:
Name of the Supervisor: PROF. CHANDAN JHA SIR

Name of the College: THE BHAWANIPUR EDUCATION SOCIETY COLLEGE

Month & Year of Submission: June 2021

DEEPAK RATHI, INSIDER TRADING Page 1

 ANNEXURE - IA

Supervisor's Certificate

This is to certify that Mr. DEEPAK RATHI a student of B.Com. Honours in Accounting &
Finance (6th Semester) of THE BHAWANIPUR EDUCATION SOCIETY COLLEGE.
(Name of the College) under the University of Calcutta has worked under my supervision and
guidance for her Project Work and prepared a Project Report with the title “INSIDER
TRADING” which he is submitting, is her genuine and original work to the best of my
knowledge.

Place: KOLKATA Name: PROF. CHANDAN JHA

Date: 30th JUNE 2021 Designation: Lecturer
Name of the College: THE BHAWANIPUR
EDUCATION SOCIETY COLLEGE

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 ANNEXURE - IB

Student's Declaration

I hereby declare that the Project Work with the title (in block letters) “INSIDER TRADING”
submitted by me for the partial fulfillment of the degree of B.Com.Honours in Accounting &
Finance in Business under the University of Calcutta is my original work and has not been
submitted earlier to any other University/Institution for the fulfillment of the requirement for
any course of study.
I also declare that no chapter of this manuscript in whole or in part has been incorporated in this
report from any earlier work done by others or by me. However, extracts of any literature which
has been used for this report has been duly acknowledged providing details of such literature in
the references.

Name: DEEPAK RATHI

Registration No.: 017-1111-0156-18
Address- 24, Narasingha Bose Lane Howrah
711101

Place: KOLKATA
Date: 30th JUNE 2021

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 ACKNOWLEDGEMENT

I express my thanks to the Principal of my college, for providing such means helpful for
completion of our college.
A special thanks to head of the department for helping me in completion of my
project.
My sincere thanks to PROF. CHANDAN JHA SIR who provided a direct support for
completion of my project.
I am also indebted to my family members who have extended support and help for
completion of this project.

DEEPAK RATHI, INSIDER TRADING Page 4

 CONTENTS
Sl. No. Particulars Page
No.
1 CHAPTER 1: INTRODUCTION 6-10
1.1 Background 6
1.2 Literature Review 7
1.3 Research & Methodology 8
1.4 Objective of the Study 9
1.5 Limitations of the Study 10
2 CHAPTER 2: CONCEPUTAL FRAMEWORK 11-22

2.1 An overview 11
2.2 National Scenario 16
2.3 International Scenario 19
3 CHAPTER 3: PRESENTATION OF DATA ANALYSIS 23-31
AND FINDINGS
3.1 Data Interpretation 23
3.2 Project Findings 31

4. CHAPTER 4: CONCLUSION AND 32-33

RECOMMENDATIONS

4.1 Conclusions 32
4.2 Recommendations 33
5 CHAPTER 5: BIBLIOGRAPHY 34

ANNEXURE: QUESTIONNAIRE 35

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 CHAPTER 1: INTRODUCTION

1.1 BACKGROUND
Insider trading essentially denotes dealing in a company’s securities on the basis of confidential
information relating to the company which is not published or not known to the public used to
make profit or loss. It is fairly a breach of fiduciary duties of officers of a company or connected
persons as defined under the SEBI regulation, 1992, towards the shareholders.

In layman's language, the term "Insider Trading" is about trading with the use of inside
information i.0e. information that has not yet been disclosed to the public. In the fastest growing
capital market system, stock exchanges occupy a very crucial position by enabling the corporate
sector to mobilize capital from household savings and channelize such savings into productive
areas of investment. The growth of securities market has brought the single most unfair
and unhealthy practice via, Insider Trading, by which persons connected with
companies use unpublished price sensitive information to deal

Although the precise explanation of Insider Trading is very difficult to define, the
following activities of an insider constitute insider trading:

 Taking advantage of inside information with full knowledge of the facts by dealing for
his own account or for the account of a third party, either directly or indirectly, in
transferable securities to which the inside information relates;

 Disclosing inside information to a third party unless such disclosure is made in the
normal course of the exercise of his employment, profession or duties.

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1.2 LITERATURE REVIEW
The whole concept of corporate insider trading has long been a source of controversy in
financial markets research, and two contrasting perspectives are common when it is discussed.
The focus of the discussion centres on the effect of insider trading on the informational
efficiency of the market and the ordinary investor.
Manne (1966) initiated the debate when he suggested that the agency problems facing managers
and shareholders would be mitigated if corporate insiders were allowed to trade and benefit
from their activities. This would lead to improved corporate decision making, resulting in an
overall increase in the value of the firm [Jensen and Meckling (1976)].
Scott (1980) and Manove (1989) have argued that insider trading can also discourage corporate
investment when self-serving managers are allowed to profit from a firm’s changing fortunes.
[Ross (1978); John and Mishra (1990); John and Lang (1991); Zhang (2001), and Chau
and Vayanos (2008)]. The insider trading increases the informational efficiency of market by
contributing to the existing information.
Carlton and Fischel (1983) who contend that if insider trading reduces the value of a firm,
investors would demand more stringent regulation than is currently imposed. They also argue
that there is no relationship between the value of a fi rm and the level of corporate insider
trading activity in the firm.
[Fishman and Hagerty (1992)] An opposing view is the belief that corporate insider trading
harms investor confidence, which leads to a fall in liquidity trading, thus resulting in a decrease
in market efficiency
Javier Estrada (1994), although specifically not arguing in favor of IT, highlighted that the
introduction of ITR leads to reduced social welfare by decreasing the flow of information,
greater price volatility, risk sharing among a fewer group of investors and diverts resources from
production to regulation..
Bhattacharya and Nicodano (2001) show that asymmetric information, by which this concept
is known, has a detrimental effect on the enthusiasm of less informed investors, which leads to a
drop in their trading.
Bainbridge (2002) refutes Manne argument on the premise that insider trading volumes are
insignificant and cannot move prices significantly.
In our review of the economic literature on insider trading, we focus our attention on the
literature that produces, more or less explicitly, normative implications.

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1.3 RESEARCH METHODOLOGY
Research in common terms refers to a search for knowledge. It is a careful investigation enquiry
especially through search for new facts in any branch of knowledge.
Research Methodology is a way to systematically solve the
research problem. It may be understood as a science of studying how research is done
scientifically .When we talk of research methodology, we not only talk of research methods but
also consider the logic behind the methods we use in the context of our research study and
explain why we are using a particular method or technique.
The data used in the given project is based on both Primary as well as Secondary data due to
inherent nature of topic.
References have been made mainly from magazines and journals published on the subject .
I have made a structured questionnaire in Google Form
which consists of 12 questions which were circulated around my area.
Link for the above:- https://forms.gle/4k3mUes6SpBAP1gG9

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1.4 OBJECTIVES OF THE STUDY
 Analysis of awareness of insider trading among Individuals.
 What are the perceptions about insider trading of an individual?
 What are the Preferences of an Individual over the investment avenues available?
 To give basic appreciation on the law relating to Insider Trading and procedures for
dealing in the equity shares / other listed securities of the company.

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1.5 LIMITATIONS OF THE STUDY
My study is based on primary as well as secondary data collected from different sources I tried
my level best to give a complete overview on this concept. However my study suffers from
some of the limitations for which I regret.

 Lack of expert knowledge being a student.

 Difficulties in searching for the books which includes topics related to my project.

 Due to scarcity of time and resources I was not able to collect more responses which
could help me to make this research project more quantitative

 The possibility of respondents responses were not true due to some any other personal
reasons.

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 CHAPTER 2: CONCEPTUAL FRAMEWORK

2.1AN OVERVIEW

Insider terms actually include both legal and illegal conduct.

LEGAL INSIDER TRADING

Legal trades by insiders are common, as employees of publicly traded corporations often have
stock or stock options. These trades are made public in the United States through Securities and
Exchange Commission filings, mainly Form 4. Prior to 2001, U.S. law restricted trading such
that insiders mainly traded during windows when their inside information was public, such as
soon after earnings releases. SEC Rule 10b5-1 clarified that the prohibition against insider
trading does not require proof that an insider actually used material nonpublic information when
conducting a trade; possession of such information alone is sufficient to violate the provision,
and the SEC would infer that an insider in possession of material nonpublic information used
this information when conducting a trade. However, SEC Rule 10b5-1 also created for insiders
an affirmative defense if the insider can demonstrate that the trades conducted on behalf of the
insider were conducted as part of a pre-existing contract or written binding plan for trading in
the future.

ILLEGAL INSIDER TRADING

Rules against insider trading on material non-public information exist in most jurisdictions
around the world, though the details and the efforts to enforce them vary considerably. Sections
16(b) and 10(b) of the Securities Exchange Act of 1934 directly and indirectly address insider
trading. Congress enacted this act after the stock market crash of 1929.The United States is

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generally viewed as having the strictest laws against illegal insider trading, and makes the most
serious efforts to enforce them.

WHO ARE INSIDER TRADERS?

The concept of 'Insider' is very important one, and on this concept only, the whole play of
insider trading rests. Broadly, there are two types of insiders—Primary Insiders and Secondary
Insiders, A primary insider is a person who has access to inside information by virtue of his
relationship to an issuer of securities. While a secondary insider is person who
acquires inside information from a primary insider. The characterizations of an insider as any
person who possesses inside formation because he has access to it by virtue of the exercise of
his employment, profession or duties, brings out two types of insiders. One is internal insider
who obtains inside information in the exercise of his duties as officer or employee of the
company. The other one is external insider who obtains information because his connection with
the company on account of his employment and profession.

The term "insider" is defined in clause (e) of regulation 2 as: "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, by virtue of such connection, to unpublished price
sensitive information in respect of securities of the company, or who has received or had access
to such unpublished price sensitive information.

“The two limbs form the two essential ingredients of the definition, both of which may be split
and presented as follows: Insider means any person
 Who, is or was connected with the company Or
 who is deemed to have been connected with the company,

And,

 Who is reasonably expected to have access, by virtue of such connection, to

unpublished price sensitive information in respect of securities of the company

Or
 Who has received or had access to such unpublished price sensitive information.

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In order to brand a person an insider any one of the two tests stipulated in the first limb and, one
of the three tests stipulated in the second limb, of the definition must be established..

Clause (c) of regulation 2 defines the expression "Connected person “and the following persons
will be treated as connected persons:

 a director or shadow director of a company,

 an officer or employee of the company,
 A person having professional or business relationship with a company, if he may
reasonably be expected to have access to unpublished price-sensitive information in
relation to that company.

INSIDER INFORMATION

The ECD defines inside information as, “information which has not been made public of a
precise nature relating to one or several issuers of transferable securities which, if it were made
public, would be likely to have a significant effect on the price of the transferable security or
securities in question. This definition does not seem to be of a satisfactory nature because this
definition on the one hand restricts inside information to that 'which has not been made public'
and on the other hand it seems to be uncertain whether information ceases to be inside when it is
published or when it becomes generally available to investors. Here, the 'information which has

DEEPAK RATHI, INSIDER TRADING Page 13

not been made public' must not be equated with information, which is not yet published.
Information is material only when, if disclosed, its effect on the market price would be likely to
be significant. Here, it must be understood that no tall information unknown to the public is
necessarily inside information, since otherwise managers and employees of undertakings would
never be permitted to trade in the securities of their company, as they always possess
unpublished information. It is, therefore, not sufficient that the information would influence
most investors in arriving at a decision whether to sell or buy but must also be likely have a
material effect on the market price of the particular security. The concept of certainty and
specificity is related with the concept materiality..
PRICE SENSITVE INFORMATION
Price sensitive information” means any information, which relates directly or indirectly to a
company and which if published is likely to materially affect the price of securities of company.
The following shall be deemed price sensitive information:—
 Periodical financial results of the company
 Intended declaration of 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, and
 Significant changes in policies, plans or operations of the company.

Listing Agreement require all listed companies to immediately inform Stock Exchange in
respect of the following events which is considered to be, price sensitive:
 Change in the general character or nature of business
 Disruption of operations due to natural calamity
 Commencement of Commercial Production/ Commercial Operations
 Developments with respect to pricing/ realization arising out of the change in the
regulatory framework
 Litigation/dispute with a material impact
 Revision in Ratings
Any other information having bearing on the operation / performance of the company as
well as price sensitive information which includes but not restricted 10;

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 A) issue of any class of securities;
B) Acquisition , merger, de-merger, amalgamation, restructuring, scheme of
arrangement, spin off or setting division of the company, etc;
C) Change in the market lot of the company’s Shares , Sub-divisions of equity shares of
the company;
D) Voluntary de-Listing by the company from the stock exchange(s);
E) Forfeiture of shares.

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2.2 NATIONAL SCENARIO
CASE STUDY: HINDUSTAN LEVER LIMITED –BROOKE BOND LIPTON INDIA
LIMITED VS SEBI

Hindustan Lever Ltd. (Herein after HLL) and Brooke Bond Lipton India Ltd (BBLIL) were
companies controlled by Unilever Inc. of U.K and were under the same management. The
merger of the HLL with BBILL was on the cards. The controversy involved purchase of 8 laths
shares of Brooke Bond Lipton India Limited two weeks prior to the public announcement of the
merger of the two companies. SEBI suspecting foul play conducted investigation. After a
comprehensive investigation spanning 15 months SEBI issued a show cause notice to the
Chairman, all Executive Directors, the Company Secretary and the then Chairman of HLL.
Later in March 1998 SEBI passed an order charging HLL with insider trading. This resulted in a
huge loss to UTI.

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ELEMENTS THAT INDUCE THE CLAUSE OF INSIDER TRADING:

On the date of acquisition of shares HLL had full knowledge of the impending merger and this
knowledge was in fact unpublished price sensitive information under the Insider Trading
Regulations and hence was in an advantageous position as compared to public investors; HLL
made misuse of this unpublished price sensitive information since it did not disclose the fact of
impending merger to U.T.I and neither did it make the same public before the deal to acquire 8
lace shares of BBLIL ; U.T.I suffered a loss of Rs. 3.4 core due to the concealment of the
information since it sold the shares at a price of Rs. 350.35 per share, whereas after the public
disclosure of the merger the share price of BBLIL shot up beyond Rs. 400. U.T.I could have got
a better price for its shares had the disclosure been made by HLL. SEBI the regulatory body
directed HLL to compensate Unit Trust of India (UTI) to the extent of Rs 3.04 core for the
notional loss incurred by it and also ordered that prosecution proceedings should be initiated
against Hindustan Lever Limited and its five directors who were party to the decision of the
purchase of shares.
HLL is an insider, according to section 2 (e) of the SEBI (Insider Trading) Regulations. It states:
An insider means any person who is, or was, connected with the company, and who is
reasonably expected to have access, by virtue of such connection, to unpublished price.
The SEBI has argued that both these conditions were met when HLL brought the BBLIL shares
from the UTI. HLL and BBLIL had a common parentage- as subsidiaries of the London based
$33.52 billion Unilever and were then under a common management. Thus, HLL and its
directors had prior knowledge of the merger. Agrees north HL and BBLIL are deemed to be
under the same management even under Section 370 (1) (b) of the Companies Act, 1956.

ACTION TAKEN BY SEBI- PENALTY IMPOSED:

SEBI directed HLL to pay UTI Rs 3.4 core in compensation, and also initiated criminal
proceedings against the five common directors of HLL and BBLIL:
The Securities and Exchange Board of India's (SEBI) decision to prosecute country's second
largest corporate, Hindustan Lever, and its five senior directors has brought into sharp focus the
grey areas of insider trading laws as well as the absence of any corporate transparency and
governance among Indian companies

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The counsel for SEBI interpreted the term insider in such a manner so that they would be in a
position to prove the fact there is insider trading in the instant case involving Hindustan Liver
Limited.
The deal helped the Unilever to retain 51 percent stake in the HLL after the merger with the
Brooke Bond Lipton India. The SEBI is of the firm opinion that HLL acted as an insider..
With the SEBI, HLL, former justices (hired by the multinational), and corporate lawyers
interpreting `insider trading' to suit their requirements, it has confused the common investors
and shareholders who have been witnessing insider trading almost on a daily basis on the Indian
bourses. In March 1998, SEBI announced criminal prosecution of five HLL directors for insider
trading and asked it to pay Rs. 3.04 cores to UTI as compensation.

THE VERDICT:
HLL Not Guilty- Proposal ‘Generally Known’
In Response to the SEBI’s Charge, HLL Appealed to the Appellate Authority pleading that it is
absolved of the charges of Insider Trading. UTI later filed an appeal with the Appellate
Authority, claiming a higher compensation of Rs.75.2 million.
In support of its ruling, the appellate Authority cited press reports that indicated ‘prior market
knowledge of the merger.’ In its judgement, the appellate Authority said that under regulation
11B, SEBI was not capable of initiating investigations and then taking recourse to powers under
the Act for awarding compensation without passing an order under the above mentioned
regulation.

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2.3 INTERNATIONAL SCENARIO:
CASE STUDY: PROFITING FROM DISASTER 9/11

In the wake of the terrorist attacks, which caused the destruction of the Twin Towers of
NewYork's World Trade Center, damaged the Pentagon, and destroyed four large airliners with
all aboard, securities-exchange investigators on three continents are poring over trading records
to determine whether one or more parties profited by their advance knowledge of the disaster.
An event as dramatic and large in scale as the Black Tuesday attacks had a severe and far-
reaching effect on worldwide stock markets. This effect is somewhat like the impact of a stone
thrown into a pond: There are certain specific companies which are strongly and immediately
affected by the attacks; others which are affected more weakly and indirectly; some which
decrease in value only because of a general feeling of pessimism rather than because of any
direct impact on their bottom line; and some which may even increase in value because they are
seen as a "safe haven" in uncertain times, or because they may gain business from an upcoming
armed conflict.
Another way of looking at this "ripple" effect of insider trading is that the farther away a
company is from the center of the impact the greater the odds that it would emerge unscathed
had the attacks' impact been less horrendous than it was. The obvious members of the "first
circle " of companies strongly affected by the attacks are American Airlines and United Airlines,
the two companies whose planes were hijacked and used as flying bombs in the attack on New
York and Washington. These companies' stocks would have decreased in value as a result of any
hijacking incident involving their planes, even one with a peaceful resolution. The same is true
to a lesser extent of other airline companies, Boeing (the principal private manufacturer of
airliners), and other companies that provide equipment and services to the air-transportation
industry. The next circle includes companies that would weather a "normal" hijacking incident
relatively unscathed, but would be significantly affected by a more violent attack. These include
the insurance and reinsurance companies, which must cover the damage, as well as firms with a
major presence in or near the Twin Towers. The general stock market -- the "third circle" in our
analogy -- would not be strongly affected by a "peaceful" hijacking, but would be by a more
violent one. It could be argued that even the Black Tuesday attacks as they occurred were not
sufficient to cause a really bad "market break" -- while the decline of the Dow Jones Industrial
Average on the first day of trading after the disaster was the largest on record in absolute terms,
it was not one of the top ten historical declines in relative terms. Had the attacks been more

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completely successful -- for example, had the fourth plane preceded to Washington and crashed
into the White House or the Capitol -- the overall market would surely have suffered a much
worse crash. To understand what might have happened, it is worth comparing the market's
performance immediately post-Black Tuesday, when the Dow Jones Industrials dropped by
about seven percentage points, and the 1987market crash, when the Dow dropped by over 22
percent in one day even though there was no obvious external reason for it to so. Investigators
will be looking at transactions starting with those that can be most easily identified as
suspicious. Already enough has emerged to indicate that some trades were almost certainly
made based upon advance knowledge of the Black Tuesday attacks:

 Between September 6 and 7, the Chicago Board Options Exchange saw purchases
of 4,744 put options on United Airlines, but only 396 call options. Although there was
no news at that time to justify so much "left-handed" trading, United Airlines stock fell
42 percent, from$30.82 per share to $17.50, when the market reopened after the attacks.
Assuming that 4,000of the options were bought by people with advance knowledge of
the imminent attacks, these "insiders" would have profited by almost $5 million.
 On September 10, 4,516 put options on American Airlines were bought on the Chicago
exchange, compared to only 748 calls. Again, there was no news at that point to justify
this imbalance; but American Airlines stock fell 39 percent, from $29.70 to $18.00 per
share, when the market reopened. Again, assuming that 4,000 of these options trades
represent "insiders," they would represent a gain of about $4 million.
 Morgan Stanley Dean Witter & Co., which occupied 22 floors of the World Trade
Center, saw 2,157 of its October $45.00 put options bought in the three trading days
before Black Tuesday; this compares to an average of 27 contracts per day before
September 6.Morgan Stanley's share price fell from $48.90 to $42.50 in the aftermath of
the attacks. Assuming that 2,000 of these options contracts were bought based upon
knowledge of the approaching attacks, their purchasers could have profited by at least
$1.2 million.
 Merrill Lynch & Co., with headquarters near the Twin Towers, saw 12,215
October $45.00 put options bought in the four trading days before the attacks; the
previous average volume in these options had been 252 contracts per day. When trading
resumed, Merrill's shares fell from $46.88 to $41.50; assuming that 11,000 option
contracts were bought by "insiders," their profit would have been about $5.5 million.

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  European regulators are examine trades in Germany's Munich Re, Switzerland's Swiss
Re, and AXA of France, all major reinsurers with exposure to the Black Tuesday
disaster.(Swiss Re estimates that its exposure will be $730 million; Munich Re expects
to pay out as much as $903 million.) It is not clear if any trades in these stocks ring
alarm bells; and some negative earnings news announced shortly before the attacks
means that a certain amount of unusual selling may have been a normal market reaction
and not anything more sinister.

Amsterdam traders have noted that there was unusual trading activity in KLM Royal Dutch
Airlines put options before the attacks. This is very much a developing story, and we can be sure
that more and more accurate numbers will emerge soon.
.Assuming that investigators are convinced that trades were made based upon advance
knowledge of the attacks, they will obviously try to trace these trades back to determine who
initiated them. Obviously, anyone who had detailed knowledge of the attacks before they
happened was, at the very least, an accessory to their planning; and the
overwhelming probability is that the trades could have been made only by the same people who
master minded the attacks themselves. The difficulty, of course, will be in tracing the
transactions to their real source. The trading is sure to have been done under false names, behind
shell corporations, and in general to have been thoroughly obfuscated. If in fact the Black
Tuesday attacks – and the associated securities transactions -- were made under orders from
Osama bin Laden, then we are dealing with an expert in masking ownership of corporations and

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making covert deals. This does not mean that unraveling the threads of these transactions will be
impossible, but it probably will not be quick or easy. The matter still is under investigation and
none of the government investigating bodies-including the FBI, the Securities and Exchange
Commission (SEC) and DOJ -are speaking to reporters about insider trading. Even so, suspicion
of insider trading to profit from the Sept. 11attacks is not limited to U.S. regulators.
Investigations were initiated in a number of places including Japan, Germany, the United
Kingdom, France, Luxembourg, Hong Kong, Switzerland and Spain. As in the United States, all
are treating these inquiries as if they were state secrets.

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CHAPTER 3: PRESENTATION OF DATA ANALYSIS AND FINDINGS

3.1 PRESENTATION OF DATA ANALYSIS

TABLE 1.1 > The age group of the respondents

AGE NO. OF RESPONDENTS PERCENTAGE

10-20 7 14%
21-30 27 54%
31-40 11 22%
Above 40 5 10%

FIG 1.1

INTERPRETATION:

It was found that out of 50 respondents majority of people age were ranged between 21-30 i.e.
54% and remaining 46% consists of respondents ageing between 10-20, 31-40 & more than 40.

TABLE 1.2 > The gender of the respondents

GENDER NO. OF RESPONDENTS PERCENTAGE

Male 28 56%
Female 22 44%

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 FIG1.2

INTERPRETATION:

Among the respondents majority were male i.e. 56% and the rest were females.

TABLE1.3 > whether do you generate Savings through your Current Income?

OPINION NO. OF RESPONDENTS PERCENTAGE

Yes 43 86%
No 7 14%

FIG1.3

INTERPRETATION

No. of respondents generates saving through their current income are in majority I.e. out of 50
respondents 43 respondents i.e. almost 86% of respondents generates savings through their
income and remaining 7 respondents i.e. almost14% being not able to save from their current
income.

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TABLE 1.4 > Among the Following, which investment Avenues will you opt?

INVESTMENTS NO.OF RESPONDENTS PERCENTAGE

Stocks 16 32%
Mutual Funds 19 38%
Bonds 9 18%
Others 6 12%

Fig1.4
INTERPRETATION:
Out of 50 respondents, 16 responses were received from the respondents who are currently
investing in stocks, 19 responses were received from the respondents who are currently
investing in mutual funds, 9 responses were received from the respondents who are currently
investing in Bonds and the rest 6 respondents are currently investing in instruments other than
Shares, Mutual Funds and Bonds.

TABLE 1.5 >Are you aware of Insider trading?

OPINION NO. OF RESPONDENTS PERCENTAGE

Yes 42 84%
No 5 10%`
Maybe 3 6%

Fig1.5

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INTERPRETATION:

Among the respondents majority of the responses i.e. almost 84% were in favor of responses
regarding awareness of Insider trading. Few of the respondents i.e. about 6% are Somewhat
aware and 10% are still unaware of insider trading.

TABLE 1.6 > whether do you consider Insider trading illegal?

OPINION NO. OF RESPONDENTS PERCENTAGE

Yes 41 82%
No 9 18%

FIG1.6

INTERPRETATION:

Out of 50 respondents, 41 respondents considers that Insider trading is Illegal in nature and rest
of 9 respondents feels that Insider trading is legally allowed.

TABLE 1.7 > I think Insider trading is illegal.

OPINION NO. OF RESPONDENTS PERCENTAGE

Agree 3 6%
Strongly Agree 37 74%
Neutral 8 16%
Disagree 1 2%
Strongly Disagree 1 2%

DEEPAK RATHI, INSIDER TRADING Page 26

 FIG1.7

INTERPRETATION:
Out of 50 respondents, about 37 respondents were strongly agreed with my opinion, 8
respondents were neutral,3 were agreed and the remaining 2 were either disagreed or strongly
disagreed.

TABLE 1.8 >Are you aware of the recent case of insider trading of "Infosys"?

OPINION NO. OF RESPONDENTS PERCENTAGE

Yes 44 88%
No 6 12%

FIG1.8

INTERPRETATION:

Among 50 respondents, 44 respondents know about the case of Insider trading of “Infosys” but
the remaining 6 aren’t aware about the case.

DEEPAK RATHI, INSIDER TRADING Page 27

Table 1.9 > Do you think policies and procedures placed by SEBI is enough to restrict abuse
of insider trading?

OPINION NO. OF RESPONDENTS PERCENTAGE

Yes 42 84%
No 8 16%

FIG1.9

INTERPRETATION:
Out of 50 respondents, 42 respondents i.e. almost 84% are satisfied with the policies and
procedures placed by SEBI to restrict the abuse of Insider trading. Remaining 8 respondents
aren’t satisfied with the policies and procedures placed by SEBI to restrict the abuse of Insider
trading.

TABLE 1.10 > which among the following is Insider trading?

OPTIONS NO. OF RESPONDENTS PERCENTAGE

a.)You sell your company's stock 2 4%
because you know it is about to
announce poor earnings
b.) Your company starts 4 8%
supplying parts for a customer's
secret major product, so you buy
the client's stock
c.) You dump a company's 3 6%
shares after your broker
confidentially tells you the CEO
at that company just sold stock.
41 82%
d.) All of the above

DEEPAK RATHI, INSIDER TRADING Page 28

 FIG1.10

INTERPRETATION:
Out of 50 respondents, 41 respondents were agreed with all the above mentioned options. Out of
remaining 9 respondents, 4 were agreed with option b, 3 were agreed with option c and 2 were
agreed with option a.

TABLE 1.11 > whether Wide Dissemination of information is a way to prevent insider
trading?

OPINION NO. OF RESPONDENTS PERCENTAGE

Yes 41 82%
No 3 6%
May be 6 12%

FIG1.11

INTERPRETATION:
Out of 50 respondents, 41 respondents were agreed with the opinion that “wide Dissemination
of information is a way to prevent insider trading”. Remaining 3 weren’t agreed and rest of the
6 respondents weren’t sure about the above statement.

DEEPAK RATHI, INSIDER TRADING Page 29

TABLE 1.12 > Whether making a proper list of price sensitive information and duly care of
the same would prevent Insider trading?

OPINION NO.OF RESPONDANTS PERCENTAGE

Yes 45 90%
No 5 10%

FIG1.12

INTERPRETATION:
Out of 50 responses, 45 responses were in the favor of the opinion that ” making a proper list of
price sensitive information and duly care of the same would prevent Insider trading” and the
Remaining 5 weren’t Satisfied..

DEEPAK RATHI, INSIDER TRADING Page 30

3.2 PROJECT FINDINGS

Followings are the findings from the above survey:-

 Majority of the respondents are ageing between21-30

.
 Most of the respondents are generating savings through their current income.

 Maximum respondents are investing in Mutual funds. From this it can be concluded that
majority have high risk appetite.

 Around 42 among 50 respondents are aware of Insider trading.

 Majority of the respondents considers Insider trading to be illegal.

 Most of the respondents believe that policies and procedures placed by SEBI is enough
to restrict abuse of insider trading.

 Majority of the Respondents are in favor of the opinion that Wide Dissemination of
information is a way to prevent insider trading.

 And Lastly it is believed by most of the respondents that making a proper list of price
sensitive information and duly care of the same would prevent Insider trading.

DEEPAK RATHI, INSIDER TRADING Page 31

CHAPTER 4: CONCLUSION AND RECOMMENDATION
4.1 CONCLUSIONS
This study is a reflection of the awareness of Insider trading among the individuals and
corporate. It isn’t possible to eliminate the risk of insider trading at level of 100% in the market
due to volatility and variability in the market. Despite Limitation I was able to analyze and
spread the awareness of Insider trading around my locality.

This study mainly focus on the factors which are considered by a corporate t prevent loss of any
insider and price sensitive information that might lead to Insider trading. Awareness level of a
corporate towards Insider trading is identified by its depth knowledge about the volatility and
variability of market.
By the survey I can say that a Corporate might lose price sensitive information despite of having
knowledge about the market as market is volatile so no one can predict its volatility. So it is
recommended for the corporate to focus more on sensitive information by delegating day to day
operational work to the Lower level management.
The study also draws an important conclusion that not all kinds of insider trading are illegal.

DEEPAK RATHI, INSIDER TRADING Page 32

4.2 RECOMMENDATIONS

Following are the recommendations of the study:

 Companies should be aware of Insider trading to safeguard their investor’s interests.

 Individual investors should be aware about Insider trading to Protect their own interests.

 SEBI should make more restrict provisions and impose more penalties on those who
commits insider trading.

 Companies should make a proper list of price sensitive information and duly care of
the same would prevent Insider trading.

 Investors Should gain knowledge about company before investing in them to prevent
themselves from things like Insider trading.

 Companies should check periodically their financial statements to see whether any
financial information being price sensitive is being leaked to any outsider that might lead
to insider trading.

 Individuals should continuously monitor their purchased stocks and bonds in the market
to prevent themselves from insider trading.

 Companies should do wide dissemination of information is a way to prevent insider

trading.

DEEPAK RATHI, INSIDER TRADING Page 33

CHAPTER 5: BIBLIOGRAPHY

5. BIBLIOGRAPHY

Articles Referred:-
 www.sebi.com
 www.hllindia.com
 www.brookebond.com

Cases Referred:-
 Profiting from disaster 9/11.
 Hindustan Lever Ltd. v SEBI (1998) 3 Comp LJ 473

Statutes referred:-
 Securities and exchange board of India (Prohibition of Insider Trading) Regulation1992
 SEBI (Insider Trading) (Amendment) Regulations, 2002

DEEPAK RATHI, INSIDER TRADING Page 34

 ANNEXURE
(QUESTIONNAIRE)
These were the questions which were asked in the survey for the research purpose:

1. Age

o 10-20

o 21.30

o 31-40

o Above 40

2. Gender

o Male

o Female

3. Whether do you generate Savings through your Current Income?

o Yes

o No

4. Among the Following , Which Investment Avenues Will you opt?

o Stocks

o Mutual Funds

o Bonds

o Others

5. Are you aware of Insider Trading?

o Yes

o No.

o Maybe

DEEPAK RATHI, INSIDER TRADING Page 35

 6. Whether do you consider Insider trading illegal?

o Yes

o No

7. I think Insider trading is illegal.

o Agree

o Strongly agree

o Neutral

o Disagree

o Strongly Disagree

8. Are you aware of the recent case of insider trading of "Infosys"?

o Yes

o No

9. Do you think policies and procedures placed by SEBI is enough to restrict abuse of
insider trading?

o Yes

o No

10. Which among the following is Insider trading?

o You sell your company's stock because you know it is about to announce poor
earnings

o Your company starts supplying parts for a customer's secret major product, so you buy
the client's stock

o You dump a company's shares after your broker confidentially tells you the CEO at
that company just sold stock, but the sale has not yet been publicly reported

o All of the above

DEEPAK RATHI, INSIDER TRADING Page 36

11. Whether Wide Dissemination of information is a way to prevent insider trading?

o Yes

o No

o May be

12. Whether making a proper list of price sensitive information and duly care of the
same would prevent Insider trading?

o Yes

o No

DEEPAK RATHI, INSIDER TRADING Page 37