The document summarizes an insider trading case involving four parties - UTI, HLL, BBLIL, and SEBI. HLL planned to merge with BBLIL, which it informed exchanges of on April 19, 1996. Before the merger, HLL bought shares of BBLIL from UTI. SEBI accused HLL of insider trading, but the finance ministry later absolved HLL of charges. The key issues were whether HLL was an insider, if it had non-public information, and if it gained unfair advantage. While SEBI argued HLL was an insider, the information was non-public, and it gained, HLL counters the information was public and it did not unfairly benefit
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
OECD Ministers adopted the revised G20/OECD Principles of Corporate Governance at the annual OECD Ministerial Council Meeting on 7-8 June 2023. In their ministerial statement adopting the Principles, Ministers recognised the contribution of the revised Principles “to the resilience and sustainability of our economies”. The revised G20/OECD Principles will be submitted to G20 Finance Ministers and Central Bank Governors for endorsement at their meeting on 17-18 July.
The Principles were revised in light of recent evolutions in capital markets and corporate governance policies and practices, and to ensure their continued standing as the leading international standard for corporate governance.
When to Consolidate and When not to?
Acquisition Method
Inter-company Entries
Consolidation Working Paper
Combined Financial Statements and how do they differ from Consolidated Financial Statements
Adjustments in Detail
It provides a comprehensive analysis of the SEBI Invetsor Protection Guideline 2000 from the point of view of the companies. It covers offer documents, exceptions, price discovery, green shoe option, e-IPO, etc.
OECD Ministers adopted the revised G20/OECD Principles of Corporate Governance at the annual OECD Ministerial Council Meeting on 7-8 June 2023. In their ministerial statement adopting the Principles, Ministers recognised the contribution of the revised Principles “to the resilience and sustainability of our economies”. The revised G20/OECD Principles will be submitted to G20 Finance Ministers and Central Bank Governors for endorsement at their meeting on 17-18 July.
The Principles were revised in light of recent evolutions in capital markets and corporate governance policies and practices, and to ensure their continued standing as the leading international standard for corporate governance.
When to Consolidate and When not to?
Acquisition Method
Inter-company Entries
Consolidation Working Paper
Combined Financial Statements and how do they differ from Consolidated Financial Statements
Adjustments in Detail
It provides a comprehensive analysis of the SEBI Invetsor Protection Guideline 2000 from the point of view of the companies. It covers offer documents, exceptions, price discovery, green shoe option, e-IPO, etc.
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
Grey Market:
Role of Governments
Attraction of grey market to firms
Counteracting the grey market
Consumers within the grey market
Conclusion
References
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
Most private companies are unable to locate an underwriter prior to going public. A direct public offering (“Direct Public Offering”) provides a viable solution to this dilemma. A Direct Public Offering allows a company to sell its shares directly to investors without the use of an underwriter. With a Direct Public Offering, the company files a registration statement with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”).
Typically, in going public transaction Form S-1 (”S-1”) registration statements are used.
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By John D. Kepler, David F. Larcker, Brian Tayan, and Daniel J. Taylor, January 28, 2020
Corporate executives receive a considerable portion of their compensation in the form of equity and, from time to time, sell a portion of their holdings in the open market. Executives nearly always have access to nonpublic information about the company, and routinely have an information advantage over public shareholders. Federal securities laws prohibit executives from trading on material nonpublic information about their company, and companies develop an Insider Trading Policy (ITP) to ensure executives comply with applicable rules. In this Closer Look we examine the potential shortcomings of existing governance practices as illustrated by four examples that suggest significant room for improvement.
We ask:
• Should an ITP go beyond legal requirements to minimize the risk of negative public perception from trades that might otherwise appear suspicious?
• Why don’t all companies make the terms of their ITP public?
• Why don’t more companies require the strictest standards, such as pre-approval by the general counsel and mandatory use of 10b5-1 plans?
• Does the board review trades by insiders on a regular basis? What conversation, if any, takes place between executives and the board around large, single-event sales?
Short summary
We identify potential shortcomings in existing governance practices around the approval of executive equity sales. Why don’t more companies require stricter standards to lessen suspicion around insider equity sales activity? Do boards review trades by insiders on a regular basis?
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3. CASE OVERVIEW
• The case primarily involves 4 parties namely Unit Trust of
India(UTI), Hindustan Lever Limited(HLL), Brooke Bond Lipton India
Limited(BBLIL), and Securities & Exchange Board of India(SEBI).
• HLL planned a merger with sister concern BBLIL so that Uniliver
has a major stake in merged company.
• Merger was to be carried out by HLL acquiring shares of BBLIL. The
corresponding stock exchanges were informed on 19 April, 1996.
• HLL bought 8,00,000 shares of BBLIL from UTI just before the
merger was initiated.
• SEBI accused HLL of INSIDER TRADING while entering in the
above mentioned transaction.
• SEBI penalized HLL with Rs. 34 million & also initiated criminal
proceedings against five common directors of HLL & BBLIL.
• On 15 July, 1998 the Union Finance Ministry absolved HLL of all
charges of insider trading & quashed all the proceedings against the
Directors.
4. WHAT IS INSIDER
TRADING...???
• Insider trading refers to a situation, where
in a person, by virtue of his position to
access unpublished price sensitive
information of the company, gains such
access and subsequently uses the
information obtained for his or her
personal benefits.
.
5. ISSUES INVOLVED IN THE
CASE
1) Whether HLL was an insider or not?
2) Whether or not the pre-merger
information HLL had access to was
‘Unpublished’?
3) Whether HLL had any price sensitive
information with regard to the merger?
4) Whether or not HLL had gained any
unfair advantage out of the deal?
7. As per clause 2(e) of SEBI regulations “Insider
means any person
• who is or was connected with the company or
• is deemed to have been connected with the
company, and
• who is reasonably expected to have access, by
virtue of such connection, to unpublished price
sensitive information, in respect of securities of
the company or
• who has received or
• has had access to such unpublished price
sensitive information.”
8. Applicability of Clause 2(e)
SEBI’s arguments HLL’s arguments
Argument 1 Counter Argument 1
• As per SEBI, HLL is deemed • As per HLL, the company had
to be connected with BBLIL access to the information
and thus had access to the because it was the primary
price sensitive information of party to the merger and no
merger where in the world primary
Argument 2 party is considered to be an
• HLL falls in the category of insider from view-point of
insider who might not be insider
connected to the company ,but
“who had access to such Counter Argument 2
undisclosed price sensitive
• No counter argument
information”
9. CONCLUSION FOR ISSUE 1
• As per the above given arguments it can
be concluded that HLL was an INSIDER
as they did have access to the price
sensitive information, even though they
did not obtain it via any connections, but
through there position as primary party in
the merger and they took advantage in the
form of buying shares from UTI so as to
consolidate there position.
10. ISSUE 2
Whether or not the pre-
merger information HLL had
access to was ‘Unpublished’?
11. As per Clause 2(k) “Unpublished price
sensitive information means,
• information which is of concern, directly or
indirectly, to a company, and
• is not generally known or published by
such company for general information,
• but which if published or known,
• is likely to materially affect the price of
securities of that company in the market.”
12. SEBI’s argument HLL’s argument
• SEBI, on the basis of statement of • As per HLL even before the
a UTI official, tried to prove that transaction with UTI the merger
information about the merger was was subject matter of wide market
“Unpublished”. & media speculation.
• They also stated that the • HLL pointed out that before
information about merger was transaction took place share price
speculative and that only HLL of BBLIL moved from Rs. 242 to
could sufficiently understand the Rs. 320 showing that merger was
technicality involved and use this a ‘generally known information’.
information.
• Thus HLL has gone against the • HLL still further contended that
regulation. UTI was a large institution & it was
not possible for UTI to remain
ignorant about the widespread
speculation in the market.
13. Conclusion for issue 2
• From the above arguments it can be
deduced that the merger was something
which was being speculated even before
the transaction between HLL & UTI took
place.
• So it was not an “Unpublished price
sensitive Information”. HLL used the
information just like any other investor in
the market.
14. ISSUE 3
Whether HLL had any price
sensitive information with
regard to the merger?
15. Section 2k of SEBI’s regulation laid down
eight examples of price-sensitive
information, which includes inter alia
“amalgamations, mergers, and takeovers”.
16. SEBI’s arguments HLL’s arguments
• As per SEBI, term • HLL argued that the
“merger” is a price- “merger” itself was not
sensitive information a price-sensitive
i.e. Widespread news information as investors
of merger in the market with reasonable
would impact the knowledge would not
number of shares be induced to buy the
bought or sold by shares unless the
investors in the market. share Swap Ratio is
• HLL had information known
about the merger with • HLL did not know the
BBLIL swap ratio at the time of
buying shares from UTI
17. SWAP RATIO
• Ratio at which shares are allotted by new
company to the old company.
• For e.g. Swap ratio of 1:10 means that the
new company will issue 1 share for every
10 shares held by shareholders of the old
company.
18. Conclusion for issue 3
HLL and BBLIL are
• sister concerns,
• having common board of directors,
• under the same holding company i.e. Unilever and
• are large profit making companies with frequently traded
shares.
Thus the news of merger would not create any ripples across
the market as the companies already have many things in
common. It would not cause any excessive trading on the part
of investors.
However, market would certainly react if the SWAP ratio
arrived is such that it is favourable to one company while
unfavourable to other. In that case it becomes a price
sensitive information.
19. ISSUE 4
Whether or not HLL had
gained any unfair advantage
out of the deal?
20. SEBI’s arguments HLL’s arguments
• As per SEBI,” Making profit or As per HLL after the merger all
losses is not a legal the shares purchased got
requirement under the cancelled and so there were
regulation to establish charge no financial gains to the
of insider trading.” company.
• As per SEBI, HLL benefitted in • They bought 8,00,000 of
the form of uncertainty BBLIL shares from UTI at
attached with the market Rs. 350 while the market price
reaction to the news of Merger was Rs.318 thus at 10%
and its subsequent impact on premium.
share prices. • Finally aim was to consolidate
the shareholdings of
UNILEVER.
21. Conclusion to issue 4
• Even though HLL says that it was not
benefited from the transaction with UTI,
however it was able to churn out huge gains.
When they formally announced merger, the
market price shot up from Rs. 318 to Rs. 405
per share while they bought those shares for
Rs.350.
• If UTI had not sold these shares they would
have got shares worth Rs.483.3 million in the
merged HLL, Rs. 208.3 million more than
what they received by selling them to HLL
before merger.
22. Overall it can be concluded that stand
taken by SEBI is incorrect because:-
1) The information about the Merger
was not an “unpublished
information”.
2) The merger itself was not a “price
sensitive information”.
3) Unintentional gains out of the
transactions.
24. • Union ministry upheld HLL’S view that the
merger was “generally known” as it was
widely speculated in national media.
• As per the ministry, SEBI should gather
conclusive evidence and should present
strong case to support its arguments.
• Still further the SEBI suffered from
procedural deficiencies and prosecuting
and penalizing HLL was beyond there
jurisdiction.
26. • Response of the Union Finance Ministry was
correct.
• Stance taken by the ministry to treat the merger as
‘generally known information’ is appropriate, as it
was being widely speculated in the media and any
investor could use the same.
• Also there were question marks about the powers
of SEBI and without the authority to do so SEBI
could not penalize HLL and prosecute the
directors.
• This case helped us in realising that it is
necessary to define the powers of SEBI.