Article,
Insider Trading in Capital Market A Legal Perspective
INTERNATIONAL JOURNAL OF TREND IN SCIENTIFIC RESEARCH AND DEVELOPMENT, 5 (5): 429-456 (August 2021)
Abstract
The term insider trading is popularly used in the negative sense as it is perceived that the persons having access to the price sensitive and unpublished information used the same for their personal gains. However insider trading per se does not mean any illegal conduct. It encompasses both legal as well as illegal conduct. The legal version is when corporate insider’s officers, directors, and employees buy and sell stock in their own companies. In order to legalize their transactions, the directors and employees of the company should inform about their dealing with the securities to the SEBI. However, commonly often we associate this term with the breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, non public information about the security. Insider trading is defined by the Black’s Law Dictionary in the following words “The use of material non public information in trading the shares of the company by a corporate insider or any other person who owes a fiduciary duty to the companyA study by the international consultants Ernst and Young EandY is reported to have noted that India has a low rate of fraud perpetrated by company insiders. Around 84 percent of the fraud involves the hand in glove relationship between the employees and a third party. Therefore, the surveillance mechanism in countries United States is quite tough to even rule out such a probability. However, lower rates of employee fraud do not mean that Indian company managements are honest and that shareholders get a better deal in India than elsewhere. Ernst and Young also came out with an interesting observation that in India company insiders with privileged access to information indulge in rampant insider trading for personal gains rather than to benefit the shareholders. Therefore, the obvious conclusion drawn by Economic Times was that the controlling interests and not the employees who take the shareholders for a ride SEBI is the watchdog of all the stock exchanges in India. It has been obligated to protect the interest of the investors in the securities market and to regulate the stock market through such other regulations as it deems fit. The SEBI acts as the regulator in the share market by taking all precautionary measures in order to repose the confidence of the investors who are investing in the market. The author has conducted an extensive research on the disclosure and divulging of the price sensitive information which would affect the share prices and disturb the equations in the share market. It is due to the very fact that the investors invest on the shares being speculative, but when the prices of the shares could be predicted well before in hand then they may take a decision accordingly. Hence, pre determined price may result in undesired consequences as people may buy huge amount of shares whose value may appreciate.The SEBI has dealt with a wide ranging plethora of cases on insider trading concerning the following aspects. The secret agreement often involves individuals who have a relationship. It may be family relationship or a business relationship. Some of them are mentioned below.Corporate officers, directors, and employees who traded the corporations securities after learning of significant, confidential corporate developments Friends, business associates, family members, and other types of such officers, directors, and employees, who traded the securities after receiving such information Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded Government employees who learned of such information because of their employment by the government andOther persons who misappropriated, and took advantage of confidential information from their employers.Because insider trading undermines investor confidence in the fairness and integrity of the securities markets, the SEBI has treated the detection and prosecution of insider trading violation as one of its enforcement priorities. Ms. Garima Dhaka Sangwan "Insider Trading in Capital Market: A Legal Perspective" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd43877.pdf Paper URL: https://www.ijtsrd.com/management/law-and-management/43877/insider-trading-in-capital-market-a-legal-perspective/ms-garima-dhaka-sangwan
