INSIDER TRADING LAWS IN INDIA – STATUS BEFORE AND AFTER THE ENACTMENT OF SEBI (PROHIBITION OF INSIDER TRADING) REGULATION, 2015

Abstract

Stock market forms the backbone of any financial system across the world as it aids in stimulating growth and investment by bringing together companies and people who invest in them. While on the one side, it has been considered by the common investor, both national and international, as an avenue for investing their surplus in the economy, on the other it facilitates the corporate entities in utilizing public money in their undertaking. However, an efficient dispensation of above function can only be assured by a stable capital market. The stability of the capital market will maintain only if the average investor preserves his confidence in the operation of stock market. Such confidence is hurt by a number of stock market malpractices hampering the growth of market amongst which ‘insider trading’ is the most rampant, noteworthy and significant. 

To introduce the concept to the uninitiated, insider trading can be described as purchase and sale of securities of corporation by person with access to confidential information about corporation that can materially affect the value of securities and which is not known by the shareholders or the general public. The central feature of conduct which could be characterised as insider trading, beyond the obvious requirement of purchase or sale of security, is the possession by the trader of the information that is in some sense material to the value of the securities traded, and is not, information already publicly known, or more specifically known to other people in the market. The phenomenon insider trading can be also be understood as situations where a person deals with securities on the basis of price sensitive information, which he or she possesses because of his / her connection with the corporation and at the time of the dealing, the information is likely and materially to affect the price of the securities being traded.