This document summarizes a case study involving SEBI's allegations of insider trading against HLL for purchasing shares of BBLIL before publicly announcing a merger. The key points discussed are: SEBI's position that HLL was an insider with non-public information; HLL's defense that it was a party to the merger negotiations and the information was generally known; and the Ministry of Finance ultimately ruled that HLL was not guilty as it did not gain any unfair advantage from the share purchase.
Insider Trading-Overview & Objective : A presentation at Indian Institute of Corporate Affairs by Mr. Manoj Kumar, Assistant Vice President, Corporate Professionals.
Key Highlights:
What is Insider Trading?
Insider trading evolution and theories : International Perspective, Misappropriation Theory, Privileged Information, Insider Trading & Corporate Governance, Indian Perspective
Insider Trading-Overview & Objective : A presentation at Indian Institute of Corporate Affairs by Mr. Manoj Kumar, Assistant Vice President, Corporate Professionals.
Key Highlights:
What is Insider Trading?
Insider trading evolution and theories : International Perspective, Misappropriation Theory, Privileged Information, Insider Trading & Corporate Governance, Indian Perspective
WHAT IS INSIDER TRADING???
Insider trading is dealing in securities of a listed company by any person who has knowledge of material “inside” information which is not known to the general public.
WHO IS INSIDER???
Insider is the person who is “connected” with the company , who could have the unpublished price sensitive information or receive the information from somebody in the company.
CONNECTED PERSON WITH DETAILED CLARIFICATION
Any person who is or has been associated with company, in any manner, during the six months prior to the concerned act:
An immediate relative to the connected person.
A banker of the company.
An official of stock Exchange or of clearing corporation.
A holding/associate/subsidiary company.
WHAT INCLUDES TRADING ?
WHO ARE INSIDER TRADERS?
Corporate officers, directors ,and employees who traded the corporations securities after learning of significant, confidential corporate developments.
Friends, business associates, family members and employees of law, banking and brokerage firms who were given such information to provide services to the corporation whose securities they traded.
GOVERNING REGULATIONS
Securities & Exchange Board Of India Act,1992
SEBI (Insider Trading) Regulations,1992
SEBI (PIT) (Amendment) Regulations,2002
SEBI (PIT) (Amendment) Regulations,2003
SEBI (PIT) (Amendment) Regulations,2008
SEBI (PIT) (Amendment) Regulations,2011
HISTORY BEHIND INSIDER TRADING IN INDIA
Insider trading in India was unhindered in its 130 year old stock market till about 1970.
In 1979,the Sachar Committee recommended amendments to the companies Act,1956 to restrict prohibit the dealings of employees. Penalties were also suggested to prevent the insider trading.
In 1989 the Abid Hussain Committee recommended that the insider trading activities may be penalized by civil and criminal proceedings and also suggested the SEBI formulate the regulations and governing codes to prevent unfair dealings.
UNPUBLISHED PRICE SENSITIVE INFORMATION
REGULATORY ASPECTS OF PROHIBITION OF INSIDER TRADING
SEBI prohibition of Insider Trading regulation 1995.
Section 11(2) E of companies act 1956 prohibits the insider trading.
WHY THERE IS NEED FOR PROHIBITION OF INSIDER TRADING???
As per SEBI the Prohibition of Insider Trading is required to make securities market:
Fair and Transparent.
To have a Level Playing Field for all the participants in the market.
For free flow of information and avoid information asymmetry.
CASE STUDY
HLL – BBLIL MERGER CASE
HLL-BROOKBOND LIPTON INDIA LTD
The case primarily involves 4 pa
OBJECTIVE
Liquidator is a person appointed by a Company or a Competent authority to manage the activities of winding up of the Company. Provisions pertaining to appointment of liquidator are stipulated under Chapter XX of Companies Act, 2013. The webinar covers the aspects of appointment of liquidator, types of liquidators, powers and duties of liquidator and judicial precedents.
ACTIONABLE CLAIM:
Actionable claim is defined in Section 3 of the Transfer of Property Act as a ‘claim to any debt other than a debt secured by mortgage of immovable property or by hypothecation or pledge of moveable property or to any beneficial interest in the moveable property not in the possession, either actual or constructive of the claimant which the civil courts recognize as affording grounds for relief, whether such debt, or beneficial interest be existent, accruing, conditional or contingent.
For more............:http://advocateselvakumar.com/
WHAT IS INSIDER TRADING???
Insider trading is dealing in securities of a listed company by any person who has knowledge of material “inside” information which is not known to the general public.
WHO IS INSIDER???
Insider is the person who is “connected” with the company , who could have the unpublished price sensitive information or receive the information from somebody in the company.
CONNECTED PERSON WITH DETAILED CLARIFICATION
Any person who is or has been associated with company, in any manner, during the six months prior to the concerned act:
An immediate relative to the connected person.
A banker of the company.
An official of stock Exchange or of clearing corporation.
A holding/associate/subsidiary company.
WHAT INCLUDES TRADING ?
WHO ARE INSIDER TRADERS?
Corporate officers, directors ,and employees who traded the corporations securities after learning of significant, confidential corporate developments.
Friends, business associates, family members and employees of law, banking and brokerage firms who were given such information to provide services to the corporation whose securities they traded.
GOVERNING REGULATIONS
Securities & Exchange Board Of India Act,1992
SEBI (Insider Trading) Regulations,1992
SEBI (PIT) (Amendment) Regulations,2002
SEBI (PIT) (Amendment) Regulations,2003
SEBI (PIT) (Amendment) Regulations,2008
SEBI (PIT) (Amendment) Regulations,2011
HISTORY BEHIND INSIDER TRADING IN INDIA
Insider trading in India was unhindered in its 130 year old stock market till about 1970.
In 1979,the Sachar Committee recommended amendments to the companies Act,1956 to restrict prohibit the dealings of employees. Penalties were also suggested to prevent the insider trading.
In 1989 the Abid Hussain Committee recommended that the insider trading activities may be penalized by civil and criminal proceedings and also suggested the SEBI formulate the regulations and governing codes to prevent unfair dealings.
UNPUBLISHED PRICE SENSITIVE INFORMATION
REGULATORY ASPECTS OF PROHIBITION OF INSIDER TRADING
SEBI prohibition of Insider Trading regulation 1995.
Section 11(2) E of companies act 1956 prohibits the insider trading.
WHY THERE IS NEED FOR PROHIBITION OF INSIDER TRADING???
As per SEBI the Prohibition of Insider Trading is required to make securities market:
Fair and Transparent.
To have a Level Playing Field for all the participants in the market.
For free flow of information and avoid information asymmetry.
CASE STUDY
HLL – BBLIL MERGER CASE
HLL-BROOKBOND LIPTON INDIA LTD
The case primarily involves 4 pa
OBJECTIVE
Liquidator is a person appointed by a Company or a Competent authority to manage the activities of winding up of the Company. Provisions pertaining to appointment of liquidator are stipulated under Chapter XX of Companies Act, 2013. The webinar covers the aspects of appointment of liquidator, types of liquidators, powers and duties of liquidator and judicial precedents.
ACTIONABLE CLAIM:
Actionable claim is defined in Section 3 of the Transfer of Property Act as a ‘claim to any debt other than a debt secured by mortgage of immovable property or by hypothecation or pledge of moveable property or to any beneficial interest in the moveable property not in the possession, either actual or constructive of the claimant which the civil courts recognize as affording grounds for relief, whether such debt, or beneficial interest be existent, accruing, conditional or contingent.
For more............:http://advocateselvakumar.com/
The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India. It was established in the year 1988 and given statutory powers on 12 April 1992 through the SEBI Act, 1992.
Insider trading complete PPT (SEBI and Case Studies)Anant8
this powerpoint presentation includes complete information about Insider Trading, its regulation in INDIA and what are its penalties. It is fully made with all the matter available till date for the topic. It also includes some minor case studies for explaining further. The matter so prepared includes all relevant updates from Slideshare, SEBI website and Google major websites.
I personally prepared this file for my College Internal Examination and scored 10/10
3. INSIDER TRADING
SEBI’S ALLEGATIONS ON HLL
FLAWS IN SEBI’S INSIDER TRADING
REGULATIONS (ITR)
HLL DEFENCE
VERDICT OF UNION MINSISTRY OF FINANCE
4. The controversy involving HLL's purchase of 8 lakh
shares of BBLIL before the public announcement of
merger.
SEBI suspected HLL of insider trading.
At the end of a 15 month process in March 1998 SEBI
charged HLL of insider trading.
On July 14 1998, the Appellate Authority in the Finance
Ministry set aside SEBI's March 1998 ruling
5. HLL PURCHASED THE SHARE OF BBLIL – MARCH
1996
MERGER OF HLL & BBLIL – 19TH APRIL 1996
SEBI LAUNCHED INVESTIGATION AGAINST HLL –
12TH MAY 1996
SEBI CHARGED HLL OF INSIDER TRADING (BUT
DIRECTORS WERE NOT FOUND ACCUSED) – 4TH
AUGUST 1997
SEBI CHARGED HLL ALONG WITH THE
DIRECTORS BEING ACCUSED – 11TH MARCH 1998
6. Whether HLL was an insider?
Whether or not the information which HLL had access
to was unpublished?
Whether HLL had profited from the deal or gained any
unfair advantage?
SEBI’s allegations & rules were up to the mark?
7. Insider Trading refers to a situation when
person having unpublished price sensitive
information such as financial
results, expansion plans, take-over bids, etc.
by virtue of his or her association with a
company, trades its shares to make undue
profits.
8. THE SEBI CHARGE -
HLL is an insider, according to Section 2 (e) of the SEBI (Insider Trading)
Regulations. It states: An insider means any person who is, or was, connected with
the company, and who is reasonably expected to have access, by virtue of such
connection, to unpublished price-sensitive information. The SEBI has argued that
both these conditions were met when HLL bought the BBLIL shares from the UTI.
THE HLL DEFENCE -
No company can be an insider to itself. The transnational knowledge of the merger
was because it was a primary party to the process, and not because BBLIL was an
associate company. To buttress this point, HLL maintains that if it had purchased
shares of Tata Oil Mills Co. (TOMCO) before the two merged in April, 1994, SEBI
would not consider it a case of insider trading. Why? Because HLL was not
associated with the Tata-owned TOMCO.
HLL contends that it purchased the BBLIL shares so that its parent
company, Unilever, could maintain a 51 per cent stake in the merged entity. Before
the merger, Unilever had a 51 per cent stake in HLL, but only 50.27 per cent in
BBLIL
According to the SEBI guidelines, HLL can be deemed to be an insider. But the
SEBIs definition of an insider has to provide a clearer picture.
9. THE SEBI CHARGE -
HLL purchased, the BBLIL shares on the basis of
unpublished price-sensitive information which is
prohibited under Section 3 of the Regulations.
THE HLL DEFENCE -
Only the information about the swap ratio is deemed to be
price-sensitive. And this ratio was not known to HLL—or
its directors--when the BBLIL shares were purchased in
March, 1996. Moreover, HLL argues that the news of the
merger was not price-sensitive as it had been announced by
the media before the companies announcement, April
7, 1996).HLL pointed out that the share price of BBLIL from
242 to 320 between January and march 1996 showing merger
is going to take place.
10. THE SEBI CHARGE -
Why did HLL not follow the route of issuing
preferential shares to allow Unilever stake to rise to 51
per cent in HLL?
THE HLL DEFENCE -
Issuing of preferential shares would
have, indeed, been a cheaper option to ensure that
Unilever had a 51 per cent take in HLL. Had HLL
followed this route, it would have had to pay Rs
282..35, instead of Rs 350.35, per share.
In other words, it would have made a profit of Rs 5.41
corers by doing so.
11. Union Ministry of Finance stated that HLL was not
guilty and is not to be blamed.
SEBI needs to amend its definition of Insider-
Trading and need to be more specific in terms of
their guidelines and regulations to control such
financial crimes.
12. The case was ethical on part of HLL.
The merger had become " a generally known
information ".
HLL did not make any unfair advantage or profit out of
the deal.
SEBI needs to be more specific about the definition of
insider trading.