M.

COM SEMESTER- I
STOCK MARKET OPERATION
Depository Services

TOPIC
INSIDER TRADING.
&
LEGAL FRAMEWORK FOR INVESTOR PROTECTION IN
.
.

INDIA.
PREPARED BY:
INDUMATI
SUMANGALA.
AKSHATA.

Guidance by:

Mr.MUSTAQ MULLA,M,com, NET, KSET

 Insider:
Definitions:
• Insiders refers to individuals who have access to public material information about a company.

Types of Insiders.

Primary Insiders: They are those who are directly connected to the company.

Secondary Insiders: They are those who deemed to be connected with company as they are expected to have
access to unpublished price sensitive information.
 Insider
Definitions:
• Insiders refers to individuals who have access to-public,material information
about a company.

Types of Insiders.

Primary Insiders: They are those who are directly connected to the company.

Secondary Insiders: They are those who deemed to be connected with company as they
are expected to have access to unpublished price sensitive information.
 Meaning of Insider Trading:
Insider trading is dealing in securities of a listed company by any person who has
knowledge of material “insider”information which is not known to the general public.

Types of Insider Trading:

 Legal Insider Trading:

Legal insider trading occurs when corporates insiders, such as executives, buy or sell shares of
their company’s stock using their own knowledge and in compliance with securities laws.

 Illegal Insider Trading:

Illegal insider trading involves trading securities based on material non-public information about a
company, in violation of securities laws.
Characteristics of Insider Trading:

● The insider uses the non-public information for his own advantages either by
avoiding losses or making profits.
● Insider trading puts the shareholder of the company at a disadvantageous
position.
● The information so providing should be material.
● The information is used to the detriment of persons who do not have access to such
information.
 Examples of Insider Trading:
● Corporates office, directors, and employees who traded the corporations securities after
learning of significant, confidential corporates development.
● Friends, business associates, family members, and other “tippees” of such as officers,
directors, and employees, who traded the securities after receiving such informations.
● Employees of, banking, brokerage and printing firms who were given such information to
provide services to the corporation whose securities to provide service to the corporations
whose securities they traded.
● Other persons who misappropriated, and took advantages of confidential information
from their employers.
 Consequence of Insider Trading:
● Legal Penalties: The severity of factors of the penalties often depends on factors such as the amount of
profit gained from the illegal traders,the individual’s level of involvement, and their criminal history.
● Regulatory Sanctions:Regulatory bodies such as the Securities and Exchanges Commission(SEC) have
the authority to impose sanction on individual and companies involved in insider trading.
● Reputational Damages:Insider trading can lead to severe reputational damages for individuals and
companies involved.This can result in loss of trust from investors, customers, and business partners.
● Loss of Employment:Individuals found guilty of insider trading may face termination of employment or
resignation from their position.
 Penalties of Investor Trading
● Civil Penalties.
● Criminal Charges.
● Fines.
● Injunctions.
● Disqualification.
● Loss of License or Regulations.
 Penalties of Investor Trading
● Civil Penalties.
● Criminal Charges.
● Fines.
● Injunctions.
● Disqualification.
● Loss of License or Regulations.
 Penalties of Investor Trading
● Civil Penalties.
● Criminal Charges.
● Fines.
● Injunctions.
● Disqualification.
● Loss of License or Regulations.
 Prevention of Insider Trading

● Clear Policies and Procedures.

● Training and Education.
● Restricted Lists.
● Internal control and Oversights.
● Code of Conduct Enforcement.
● Compliance Monitoring and Review.
Legal Framework For Investor
Protection In India
Subtitle: Safeguarding Investor Rights And Interests
 Definition Of Investor Protection:

Ensuring fairness and transparency in financial markets to safeguard investors interest.

Overview of the Legal Framework in India:

The legal framework in India for investor protection encompasses various laws,
regulations,and institution such as the Securities and Exchanges Board of India(SEBI),
Companies Act,2013,and Investor Education and Protections Fund (IEPF).These entities
work together to ensure transparency,fairness,and accountability in the capital markets,
safeguarding investors interest and promoting markets integrity.
Regulations of Investor Protection:
● Disclosure Requirement.
● Anti-Fraud Provision.
● Registration and Licensing.
● Enforcement Mechanisms.
● Investor Education.
Need for Protection the Investor:
● To install confidence in the investors mind.
● To create a conducive measures for investment.
● To ensure transparency in dealing.
● To regulate the market on sound lines.
● To create discipline in the market.
Investors Protection Acts:

1. Securities and Exchange Board of India.

2. Companies Act,2013.
3. Securities Contracts(Regulations) Act,1956.
4. Depositories Act,1996.
5. Investors Educations and Awareness Initiatives.
6. Dispute Resolutions Mechanisms.
7. Continuous Regulatory Updates and Amendments
Securities and Exchanges Board of India(SEBI):
SEBI is the primary regulatory authority for investors protection in India.Established in 1988.
SEBI was granted statutory powers by the SEBI Act of 1992.Its mandate includes regulating securities
markets,protecting investors interests,and promoting markets development.
SEBI formulates regulations,guidelines,and directives to ensure fair and transparent dealings in securities
markets.
Functions Related to Investors Protection:
● Regulations of Securities Markets.
● Issuer Regulations.
● Intermediary Regulations.
● Investors Education and Awareness.
SEBI Rights to Investors:
● Right to Information.
● Right to Treatment.
● Right to Redressal.
● Rights to Participation.
● Right to Investor Education.
 Companies Act,2013:
The Companies Act,2013,contains provisions pertaining to corporates
governance,shareholders right,and Investor protection.It mandates transparency and
accountability in corporates affairs,disclosure of financial information,and protection of
minority shareholders interests.

Functions Related to Investors Protections:

● Shareholder Rights and Protection.

● Corporates Governance Standards.
● Enhanced Corporates Social Responsibility(CSR)Reporting.
● Regulation of Insider Trading.
Company Act,2013 Right to Investors:

● Ownership Rights.
● Voting Rights.
● Information Rights.
● Transferability Rights.
● Pre-emptive Rights.
 Securities Contracts(Regulation) Act,1956:
The Securities Contracts(Regulation) Act,1956,governs the regulation and control of
securities markets and exchanges in India.It defines the legal framework for securities
transitions,including the listing.trading,and settlements of securities,to ensure markets
integrity and investor confidence.

Function for Investor Protection:

● Regulations of Securities Markets.

● Licensing and Regulation of Stock Exchanges.
● Markets Surveillance and Enforcement.
● Regulation of Securities Contracts.
Securities Contract(Regulation) Act 1956 Right to Investors:

● Regulation of Stock Exchanges.

● Investors Protection.
● Regulation of Securities Contract.
● Transparency and Disclosure.
● Regulation of Intermediaries.
Depositories Act,1996:
The Depositories Act,1996, regulates the functioning of securities depositories in India,
such as the National Securities Depository Limited(NSDL) and the Central Depository
Services Limited(CDSL).Its governs the dematerialization,transfer,and custody of
securities to streamline securities transactions and protect investors interests.
Functions for Investors protections:
● Safety and Custody of Securities.
● Dematerialization of Securities.
● Account Maintenance and Reporting.
● Integration with Capital Markets.
Depositories Act 1996,Right to Investors:
● Safeguard of Securities
● Transfer and Transmission of Securities.
● Consolidated Holding Statements.
● Nomination Facility.
● Access to Information.
 Dispute Resolution Mechanisms:

Investor protection mechanisms include arbitration,adjudication,and mediation process to ensure

timely and fair resolution of investor grievance.

Functions for Investor Protections:

● Timelines and Efficiency.

● Fairness and Impartiality.
● Enforceability of Decisions.
● Transparency and Accountability.
 Dispute Resolution Mechanism Rights to Investors:

● Internal Complaints Handling.

● Regulatory Complaints.
● Alternatives Dispute Resolution.
● Civil Litigation.
 Investor Education and Awareness Initiatives:

Regulatory authorities,markets intermediaries,and industry association undertakes

investors education and awareness programs.These initiatives aims to enhance investor
literacy,promotes responsible investing,and enables investors to make informed decision
while protecting them from fraudulent scheme and misconduct.

Function for Investor protections:

● Financial Literacy.
● Understanding Investment Risks.
● Avoid Investment Scams Fraud.
● Investment Planning and Goal Setting.
Investors Education and Awareness Initiative Rights to Investors:

● Access to Information.
● Transparency.
● Participation.
● Empowerment.
Continuous Regulatory Updates and Amendments:
The legal framework for investor protection undergoes periodic updates and
amendments to address emerging risks,markets development,and regulatory
challenges.Regulatory authorities regularly reviews and revise regulations to enhance
investor protection standards and align with international best practices.

Functions for Investor Protection:

● Risk Assessment and Monitoring.
● Stakeholder Engagement and Consultation.
● Adaptation to Market Developments.
CRUA Rights to Investors:
● Transparency.
● Accessibility.
● Clarity and Understanding.
● Impartiality.
● Feedback and Engagement.
 Conclusion

The legal framework for investors protection in India is multifaceted, encompassing laws,
regulations regulatory oversight, investor education initiatives,and disputes resolution
mechanism .