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  2. 2. o Historyo Legal Frameworko Meaning of Insider Tradingo Need of Insider Trading Regulationo Meaning of Insiderso Connected Personso Price Sensitive Informationo Prohibition of Trading
  3. 3. o Free Periodo Disclosures as per Securities And Exchange Board of India (Prohibition of Insider Trading), 1992o Penalties
  4. 4. o In 1979, the Sachar Committee recommended amendments to the Companies Act,1956 to prohibit the insider trading.o In 1986, the Patel Committee recommended that the Securities Contracts Act, 1956 may be amended to curb insider trading and unfair stock deals.o In 1989, the Abid Hussain Committee recommended that the insider trading activities may be penalised by civil and criminal proceedings and also suggested the Securities And Exchange Board of India (SEBI) to formulate the regulations and the governing codes to prevent unfair dealings.o In 1992, Securities And Exchange Board of India (prohibition of Insider Trading) Regulations, came into force to prohibit insider activities.
  5. 5. o SEBI introduced regulations to govern Insider Trading in 1992o Regulations modified from time to timeo Applicable to all Listed Companieso Applicable to all Registered Intermediarieso Regulations require Company to adopt internal code of conduct
  6. 6. Sahil is her husband whoSaira is an Accounts runs his own recruitmentManager in XYZ Ltd consultancy firm
  7. 7. One fine day when Saira was checking her emails she received a mail from SecretarialDepartment. It contained an information that her Company is Going to buy oversome another Company (takeover of a Company).
  8. 8. Realising that the email was sent to her by mistake , Saira deleted it andcarried on with her day’s routine.
  9. 9. While taking dinner Saira discussed about the email she received with herhusband.
  10. 10. Sahil made a misuse of this unpublished price sensitive information andmade profit out of it by dealing in the securities of the Company.
  11. 11. Would Saira and Sahil be guilty of Insider Trading?
  12. 12. The answer is YES. Saira and Sahil will be punished as per theCompanies and SEBI’s Rules.Reasons: 1. Dealing in unpublished price sensitive information 2. Opposite Transation 3 Pre-clearance not taken
  13. 13. As per SEBI the prohibition of Insider Trading is required tomake securities market:oFair and TransparentoTo have a level playing field for all the participants in marketoFree flow of informationoAvoid information asymmetry
  14. 14. An insider means any person who,o is connected with the Company or is deemed to have been connected with the Company and is reasonably expected to have access to unpublished price sensitive information in respect of securities of a Company, oro has received or has had access to such unpublished price sensitive information
  15. 15. As per Securities And Exchange Board of India (Prohibition of InsiderTrading), 1992 , connected persons are as below:o Member of the Board of Directors of the Company Officer or an employee of the Companyo Company under the same management or group or any subsidiary company thereofo Intermediaries like investment company, trustee company,asset management Company, merchant Banker, share transfer Agent, Registrar to an issue, broker, portfolio manager, Investment advisor, banker etco Official or an employee of a self regulatory Organisationo An Official of a stock exchange or of clearing house corporationo Relatives of all the above (as per section 6 of the Co. Act, 1956)
  16. 16. The following shall be deemed to be price sensitive information:oPeriodical financial results of the CompanyoIntended declaration of dividends (both interim and final)oIntended issue of securities or buy-back of securitiesoAny major expansion plans or execution of new projectsoAmalgamations, mergers or take-oversoDisposal of the whole or substantially the whole of an undertaking
  17. 17. o Any changes in policies, plans of the Companyo Revision of credit ratings assigned to any debt or equity instrument of the Companyo Litigation /dispute with a material impacto Cancellation of dividend/rights/bonus, etco Any other information which materially affects the prices of the securities of the Company
  18. 18. oProhibited Period Transactions Connected Person (CP) not to deal during prohibited period (CP shall be entitled to exercise the option under ESOP but cannot sale during the PeriodoOpposite Transaction CP not to buy/sell during the next six months following the prior transactions (except ESOPs)
  19. 19. o Any period other than the prohibited period is free periodo Share Dealing can be done in this period subject to pre-clearance from the Compliance Officer
  20. 20. oInitial Disclosure (as per regulation 13(1) of the SEBI (Prohibition of Insider Trading) Regulations, 1992Any person who holds more than 5% shares or voting rights inany Listed Company shall disclose to the Company in Form Awithin 2 working days of acquiring the shares or voting rightsAny person who is a Director or Officer (including theirdependants) of a Listed Company should disclose to theCompany in Form B all its trade positions in equity or derivativeswithin 2 days of appointment
  21. 21. o Continual Disclosure (as per regulation 13(1) of the SEBI (Prohibition of Insider Trading) Regulations, 1992Any person holding more than 5% shares or voting rights in any listedCompany shall disclose to the Company in Form C the number of sharesor voting rights held or any change exceeding 2% of total shareholding orvoting rights in the Company within 2 days of acquisition of sharesAny person who is a Director or Officer (including their dependants) of aListed Company should disclose to the Company in Form D, if changeexceeds Rs. 5 Lakhs in value or 25000 shares or 1% of total shareholding orvoting rights whichever is lower within 2 days of acquisition or sale ofshares
  22. 22. o Initiate Criminal Prosecution against the defaultero Prohibition from Dealing in any kind of Securitieso Restraining the defaulter from any counseling to any person to deal in securitieso Null and voiding such transactionso Penalty of Rs. 25 crore or 3 times the amount of profit madewhichever is highero Imprisonment upto 10 years or fine upto 25 crores or both.