Insider trading: Indian perspective on prosecution of insiders

Abstract

PurposeThe purpose of this paper is to discuss and evaluate the Indian legal system with regard to prosecution of persons involved in insider trading.Design/methodology/approachThe project follows an analytical and deductive methodology. The theoretical information was gathered from books and the internet. The assimilated information was analyzed on the basis of which conclusions were drawn. The sources for the research have been mentioned in the relevant footnotes when used.FindingsAlthough Indian law has relevant provisions to deal with insider trading, it is not effective enough to curb this white‐collar crime. The criminal remedies are not implemented because of the lengthy formalities and the requirement of proving it “beyond all reasonable doubt”. The civil penalties, even though invoked, are not enough to act as a deterrent and face several lacunae. These shortcomings have been addressed in the papers with relevant recommendations to the law making body – the Securities and Exchange Board of India (SEBI).Research limitations/implicationsA field study would have been desirable to bring out some of the problems from direct sources like officials and employees of the SEBI. However, this proposal was limited by the fact that the SEBI does not have an office in the city of Jodhpur and hence the information has been gathered from sources, such as books and the internet.Originality/valueThe paper will be of value to foreign investing institutions looking to invest funds in Indian stock markets, to the regulating agencies such as SEBI, law making agencies and experts in the field of corporate law.