ASPECTS OF INSIDER TRADING VIS-A-VIS SEBI REGULATONS 

Securities Exchange Board of India provides for SEBI (Prohibition of Insider Trading ) Regulations, 2015 which deals with the various aspects of Insider Trading an organization. Insider trading refers to the disclosure of the unpublished price sensitive information. These information are likely to affect the prices of the shares in the market. Regulation 2(e) defines ‘insider’ as a person connected or deemed to be connected with company having access to unpublished price sensitive information. Company is required to take adequate steps to ensure that the employees in the organization do not have an access to such information. A Chinese Wall Policy is now adopted by organizations which separate the people having access to such information from the people in the inside areas of the organization such as  planning, purchasing, selling, etc. employees in the organization should not be able to influence the price if the securities being offered on the basis of such information. It is important to note that directors, employees, or officers of company do not become a connected person by virtue of their position in the company. The directors, employees or officers of a company are allowed to trade in the securities of the company only when the trading window is open. The following information is deemed to be unpublished price sensitive information:-

(i). Financial statements

(ii). Cash Flow Statement

(iii). Issue or buy-back of securities

(iv). Amalgamation, mergers and acquisitions

(v). Any significant changes in the policies, plans or procedures of the companies.

Insider trading refers to dealing in corporate securities such as stocks or shares which are dealt it by corporate insiders or their associated based on the information originating within the firm which once disclosed publicly would affect the price of the securities. The above definition excludes information such as non public outside information, known market wide or industry developments and strategies of the competitors.

Insider trading is quite different from market manipulation, disclosure of false and misleading information, or direct expropriation of the company’s wealth to the outsides. Also, transactions based on unequally distributed information are common and often legal, however most companies find it objectionable .One reason for its being objectionable is because it violates it fiduciary duties that the employees as agents owes to their employers. A related objection is that, because managers control the production of, disclosure of, and access to inside information, they can transfer wealth from outsiders to themselves in an arbitrary and hidden way. An economic rationale advanced for prohibiting insider trading is that affects the securities and capital markets and also decreases the firm’s value.

The SEBI has indeed been circumspect in formulation of strategies for prohibiting insider trading. It covers all possible aspects of insider trading and provides measures for its prevention. Thus SEBI has ensured a level of playing field for all shareholders of company who otherwise would have been at a loss in the absence of such regulations. These regulation also ensures that the insider does not undermine the interests of the small shareholders while himself making a profit or insulating himself against a prospective loss.