INSIDER TRADING

It is defined as malpractice, where the purchase or sale of stocks or other securities based on information that is not provided to the general public. It refers to any material information that may result in a substantial impact on the decisions of the investors regarding the trading of the security. It involves a direct breach of fiduciary duty or violation of trust.

In market terms, any information that could affect a company’s stock price is known as material information. Insider trading is highly discouraged by the SEBI to promote fair trading in the market for the benefit of the common investor. If any employee or any executive who have access to the strategic information of the company and uses it for trading this process is known as insider trading.

Insider trading also can arise in cases where no legal duty is present. But another crime has been committed, like corporate espionage. For example, an organized crime ring that infiltrated certain financial or legal institutions to systematically gain access. And to exploit and use private information could be found guilty of such trading, among other charges for the related crimes.

Insider information allows an individual to profit in some cases and to avoid loss in others. In either case, it is an abuse of someone's knowledge or position of power. It is illegal because it gives an unfair advantage to people "in the know."

Insider trading works by those who have been prosecuted for trading includes corporate officers, employees, government officers, and those who have tipped them off with insider information. Not all insider trading is illegal. Examples of legal insider trading are:

1. A CEO of a corporation buys 100 stock of shares in the corporation. The trade is reported to the Security and Exchange Commission.
2. An employee of a corporation exercises his stock options and purchases 200 shares of stock in the same company that he works for.

Real-life examples of illegal insider trading are:

1. MC Mehta case
2. Raja Ratan case
3. Rajat Gupta case
4. S. vs O’Hagan case

Illegal insider trading consists of penalties of both monetary and imprisonment. The duration of imprisonment depends upon the severity of the case. The Security Exchange Commission has moved to ban violators from serving as executives at publicly traded companies.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.