Insider Trading in India in Comparison With USA

Abstract

Insider trading, the most conspicuous misbehaviour of the stock market, is additionally one of the most troublesome & difficult one to crack by regulators around the globe. Insider trading is a term dependent upon numerous definitions and meanings and it envelops both lawful and disallowed action. Insider trading happens legitimately every day when corporate insiders – officials, directors or employees – purchase or sell stock in their own companies inside the bounds of company policy and the guidelines administering this trading. In basic terms 'insider trading' is purchasing or selling of a security, in breach of a trustee obligation or other relationship of trust, and confidence, while possessing material, non-public information about the security. 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basis of confidential information relating to the company which is not published or not known to the public (known as unpublished price sensitive information), used to make profits or avoid loss. It is fairly a breach of fiduciary duties of officers of a company or connected persons as defined under the Securities Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, towards the shareholders. An ‘unpublished price sensitive information’ means information relating to the present or probable future state of the company, that can potentially affect the value of the securities of the company in the market, that has not been available to the public. By the use of such material non-public information, the insider himself, or the person to whom the information is made available to, can trade in the securities of the company for his own benefit, thus causing a loss to those who do not possess such information. An insider deals in shares of a company to make unwarranted gains by virtue of his employment or such other connection, thereby rendering the underlying principle of fair and free transferability of shares unaccomplished in the capital market. This is the primary reason for the formation of these regulations viz. to promote free and fair transferability of stocks in the capital market wherein the investors can deal in the securities in an unperturbed manner.