SECURITIES AND EXCHANGE

BOARD OF INDIA
(PROHIBITION OF INSIDER
TRADING)
REGULATIONS, 1992

PRESENTED BY:

Abhishek Dhulekar
Achal Ramesh
Adhvaith Hattiangadi
Amit Singh
Anand Raorane
Ankit Jain
 INSIDER TRADING

• Insider information is information (about company strategy

and plans) that someone within a company has but that is not
available to those outside the company
• The moral problems connected with insider information
concern the use that individuals may make of such
information while they are still members of the firm

Two aspect of the problem:

• One is that of some one within the firm using information for
his or her private gain, at the expense of the firm.
This is called conflict of interest
• The other is the use of insider information by someone within
a firm advantage over those not in the firm
 INSIDER TRADING
Those who attempt to justify insider trading in terms of market
efficiency are mistaken. They believe in the market as an
impersonal mechanism which does not care who gains or loses
in its transaction. Winner and losers are beside the point,
because the market is simply an efficient means of matching
buyers and sellers.

• Even though the stock market acts impersonally, it mediates

transactions between people, and transactions between people
are properly subject to moral rules
• Those buy and sell do care who gains and loses; Both parties
desire and deserve a fair market
• The second case of illegitimate use of insider information also
concerns personal gain, not at the company’s expense but at the
expense of those not connected with the company. This typically
occurs in trading the stock of the company for which one works
 INSIDER TRADING
• SEBI considers an “insider” any one who has pertinent
information that is not publicly available, and that gives
the trader an advantage over public. Thus the
secretaries, lawyers, consultants, financial printers, and
others who have access to inside information become
insider because of their knowledge
• Many companies go to extreme lengths to keep
takeovers and similar plans secret. They use code words
for the companies involved. They guard against tapped
phones and electronic surveillance

• Efficiency and Fairness

Efficiency is not the only important factor in market or in
ethical thinking; Fairness is central to both
 PRELIMINARY
Definitions

In the Securities and Exchange Board of India ([Prohibition of

Insider Trading) Regulations, 1992,
• “Act” means the Securities and Exchange Board of India Act,
1992 (15 of 1992);
• “connected person” means any person who
– is a director of a company, or is deemed to be a director of
that company or
– occupies the position as an officer or an employee of the
company or holds a position involving a professional or
business relationship between himself and the company
(person who is a connected person six months prior to an act
of insider trading)
 PRELIMINARY
• “dealing in securities” means an act of subscribing, buying,
selling or dealing in any securities by any person either as
principal or agent
• “insider” means any person who,
– is or was connected with the company or is deemed to
have been connected with the company and is reasonably
expected to have access to unpublished price sensitive
information in respect of securities of a company, or
– has received or has had access to such unpublished price
sensitive information
• “person is deemed to be a connected person”, if such person,
– is a company under the same management or group, or
any subsidiary company thereof
 PRELIMINARY
– is an intermediary, Investment company, Trustee Company,
Asset Management Company or an employee of a stock
exchange or of clearing house
– is a merchant banker, share transfer agent, registrar to an
issue, debenture trustee, broker, portfolio manager,
Investment Advisor, sub-broker, Investment Company or
an employee thereof
• “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
the company; any of the following shall be deemed to be
price sensitive information like
– periodical financial results of the company;
– intended declaration of dividends (both interim and final)
 PROHIBITION ON DEALING, COMMUNICATING OR COUNSELLING

• No insider shall
– deal in securities of a company listed on any stock
exchange
– Communicate, counsel or procure directly or indirectly any
unpublished price sensitive information
Unless required in the ordinary course of business
• No company shall deal in the securities of another company
• Any insider who deals in securities in contravention of the
provisions of regulation 3 shall be guilty of insider trading
 INVESTIGATION

• If the Board suspects that any person has violated any

provision of these regulations, it may make inquiries with such
persons or any other person, to form a prima facie opinion as
to whether there is any violation of these regulations
• Board may appoint one or more officers to inspect the books
and records of insider(s)
• The Board may appoint a qualified auditor to investigate into
the books of account or the affairs of the insider
• The Board may, to protect the interests of investor , declare
the transaction(s) in securities as null and void AND/ OR direct
the person who acquired the securities in violation of these
regulations to deliver the securities back to the seller
 POLICY ON DISCLOSURES AND INTERNAL PROCEDURE
FOR PREVENTION OF INSIDER TRADING

• All listed companies and organisations associated with

securities markets shall frame a code of internal procedures
and conduct, without diluting it in any manner and ensure
compliance of the same
• Any person who holds more than 5% shares or voting rights in
any listed company shall disclose to the company, the number
of shares or voting rights held by such person, on becoming
such holder
• Every listed company, [within two working days] of receipt,
shall disclose to all stock exchanges on which the company is
listed, the information received
 MODEL CODE OF CONDUCT FOR PREVENTION OF
INSIDER TRADING FOR LISTED COMPANIES

• The listed company shall appoint a Compliance Officer, a

senior level employee who shall report to the Managing
Director/Chief Executive Officer
• He is appointed for setting forth policies, procedures,
monitoring adherence to the rules for preservation of “Price
Sensitive Information”
• Employees/directors shall maintain the confidentiality of all
Price Sensitive Information

• The company shall specify a trading period, to be called

“trading window”, for trading in the company’s securities
• The trading window shall be closed at the time of declaration
of financial results
 MODEL CODE OF CONDUCT FOR PREVENTION OF
INSIDER TRADING FOR LISTED COMPANIES

• Any employee/officer/director who trades in securities or

communicates any information for trading in securities in
contravention of the code of conduct may be penalised AND
subject to disciplinary action by the company, which may
include wage freeze, suspension, etc

MODEL CODE OF CONDUCT FOR PREVENTION OF

INSIDER TRADING FOR OTHER ENTITIES
 AMENDMENT IN INSIDER TRADING
REGULATIONS

• Amendment in the Model Code of Conduct - all the directors,

officers, and designated employees of a listed company would
not be allowed to entered into Opposite Transaction, i.e., sell or
buy any number of shares during the next six months following
the prior transaction
• An absolute prohibition on the aforesaid person from taking
positions in derivative transaction in the shares of the company
at any time
• Even the dependents of Directors/officers/designated
employees who intend to deal with the securities of the
company above the minimum threshold limit as decided by the
company are required to pre-clear the transaction and execute
the order within a week of obtaining the approval
 AMENDMENT IN INSIDER TRADING
REGULATIONS

• (Notification (SEBI Notification No. LAD-

NRO/GN/2008/29/44801 dated 19th November 2008)
• Definition of “Insider” has been broadened to include any
person who has received or has access to unpublished price
sensitive information, whether or not he is or was or is deemed
to be connected with the company
• “Working Day” mean the day when the regular trading is
permitted on the concerned stock exchange where the
securities of the company are listed
• Disclosures by the acquirer are now required to be made within
2 working days to the company and further by the company to
the stock exchange within 2 working days
 AMENDMENTS TO SEBI PROHIBITION OF INSIDER
TRADING REGULATIONS
• SEBI has amended the SEBI Prohibition
of Insider Trading Regulations vide notification dated
19th November 2008
• The definition of “insider” has been amended. Interestingly, there
is magic involved here! Not one word has been added or deleted.
But the meaning of the term “insider” has changed
substantially! For example, now, any person who receives or has
access to unpublished price sensitive information is
an “insider”. (This magic is achieved by dropping just one comma
and breaking up the definition in into two paragraphs)
• It is also required that the Code to be framed by listed companies,
etc. in a form as near to the Model given should be framed
“without diluting (the Model) in any manner and ensure
compliance of the same”. It will be interesting to examine what the
words “without diluting” could mean, in law
 AMENDMENTS TO SEBI PROHIBITION OF
INSIDER TRADING REGULATIONS

• As per the amended Code, Directors/officers/designated

employees are prohibited from carrying out an opposite
transaction for six months. Thus, if such a person buys even
one share, he cannot sell any share for six months. And, if he
sells even one share, he cannot buy even a single share for six
months
• A transitional issue will arise as to whether this restriction
would apply even if purchases/sales were made before this
amendment.
• Furthermore, it seems that such persons, as per the amended
Code, cannot at all and ever take any position in derivatives
relating to shares of the Company!
 Link for Insider Trading Cases
• http://economictimes.indiatimes.com/quickie
articleshow/5143933.cms