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Insider is the person who is “connected” with the company , who could have the unpublished price sensitive information or receive the information from somebody in the company.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UNPUBLISHED PRICE SENSITIVE INFORMATION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
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
A presentation about frauds those took place in financial giants and top most companies of the world during decades. This presentation will be helpful for students information.
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
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
A presentation about frauds those took place in financial giants and top most companies of the world during decades. This presentation will be helpful for students information.
A PRESENTATION ON COMPETITION ACT, 2002 WITH RECENT AMENDEMENTS. PRESENTED BY MADHUSUDAN NARAYA, STUDENT OF MBA AT NATIONAL INSTITUTE OF TECHNOLOGY, DUGAPUR, WEST BENGAL.
THIS TOPIC IS NECESSARY FOR MARKETING PEOPLE AND THE SLIDE CONTAINS THE CASES ALSO !!
Presentation on Independent Director as per Companies Act 2013Vishal Dhona, ACS
Presentation is made for understanding what is independent director? what are its roles?
Also by means of this you can understand what are the various provisions applicable to independent director.
This presentation is on Security Exchange Board (SEBI) which gives the brief about the SEBI with its objective, function, details about the chairman, rules
A PRESENTATION ON COMPETITION ACT, 2002 WITH RECENT AMENDEMENTS. PRESENTED BY MADHUSUDAN NARAYA, STUDENT OF MBA AT NATIONAL INSTITUTE OF TECHNOLOGY, DUGAPUR, WEST BENGAL.
THIS TOPIC IS NECESSARY FOR MARKETING PEOPLE AND THE SLIDE CONTAINS THE CASES ALSO !!
Presentation on Independent Director as per Companies Act 2013Vishal Dhona, ACS
Presentation is made for understanding what is independent director? what are its roles?
Also by means of this you can understand what are the various provisions applicable to independent director.
This presentation is on Security Exchange Board (SEBI) which gives the brief about the SEBI with its objective, function, details about the chairman, rules
TFW LTE 1032 ANM Assignments Position Paper Detail Submission Grade .pdftesmondday29076
TFW LTE 10:32 ANM Assignments Position Paper Detail Submission Grade Position Paper
Due: Jul 25, 2018 at 11:59 PM Topics for Final Paper-choose a topic from the following options
. Examine the issue of insider trading Analyze the ethical issues at stake (be sure to look at the
issue from both Utilitarian and Kantian perspectives). Do you believe insider trading is ethical?
Why or why not? Be sure to support your position with reasoned argumentation (including
showing why the alternative positions are ethically weaker than your own) Write a critical essav
(either in sunnort of Previous Next Dashboard Calendar To Do Notifications Inbox
Solution
Answer ) Insider Trading and Business Ethics
Many people are complaining insider trading since it is unfair for some people who do not have
confidential information about a certain company. People who do not have information that is
not yet into the public lose their confidence and trust towards the company. Therefore, many
companies lose potential investor from insider trading. Insider trading is a huge issue among
people. Insider trading can be an unethical; yet sometimes it can be ethical.
What is Insider Trading :Insider trading is a word that has many definitions and connotations and
which includes both legal and illegal activities. It can also be described as an insider trading of a
company’s stock, securities, bonds and stock options by persons with possible access to non-
public information about the company. Nevertheless, insider trading can take place lawfully
every day, when trading by the corporate insiders such as officers, directors, employees and large
shareholders to buy or sell stock in their own companies if this trading will not be taking
advantage of the non-public information and also be within the boundaries of the company’s
policies and the rules governing this trading. However, the term “insider trading\" is mostly used
to describe a practice in which an insider party trades based on non-public material information
gained through the performance of the insider’s obligation at the company, in violation of other
relationships of faith and assurance or otherwise when the non-public information was stolen
from the company. In other words, insider trading is buying, selling or dealing in securities,
bonds, and stocks of a company by a director, manager, or employee of the company who has
confidential information that is not accessible to the public.
Who is an Insider:An insider is a person who has entrée to the confidential information about a
company or corporation that will affect the stock price or might manipulate investors’ decisions.
This is “material information\". Moreover, most company executives clearly have important
information about the company. For example, the manager of sales knows how much the
company has sold and if it rallies, the estimates provided with the investors. Moreover, others
who work with the company also have material information; for instance, the accoun.
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The presentation discusses various aspects of Corporate Governance and involved issues, keeping in view the recent developments and controversies arose in conglomerates such as Tata and Infosys. It aims at portraying the extant position in filed of Corporate Governance vis-a-vis a pragmatic view of what it would be.
A Presentation given by Mr. Pavan Kumar Vijay, Past President, ICSI, Chairman-Secretarial Standards Board
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Mr. Chander Sawhney, Partner & Head – Valuation & Deals, Corporate Professionals shared his thoughts as a guest Speaker on M&A Valuation and challenges at a Business Valuation Masterclass organised by VC Circle on 31st August, 2016. Corporate Professionals acted as the event supporting partner.
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• Valuer’s role is to incorporate case specific factors and use appropriate methodologies so as to determine a fair ratio
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But before using a multiple, one should know the fundamentals determining the multiple and how changes impact it. Sanity check through use of fundamental valuation method like DCF is strongly recommended.
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Implicitly or explicitly all competing businesses employ a strategy to select a mix
of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
Agency Managed Advisory Board As a Solution To Career Path Defining Business ...
Insider Trading - Overview & Objective
1. [ICLS Mid Career Training Programme]
07.01.2013 | Session I
Insider Trading: Overview & Objective
By
MANOJ KUMAR
Assistant Vice President
Corporate Professionals Capital Private Limited
2. 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 available
to general public.
• It is breach of a fiduciary duty or other
relationship of trust, and confidence.
• It is a crime if made to get wrongful gain or avoid
losses
3. Insider Trading: Genesis
• Insider Trading is one of the most prevailing form of Securities Market
Offence worldwide. The genesis Insider Trading is human GREED!
• It is really difficult for persons with privileged information which could help
him to gain substantial profit or allow avoidance of loss to control the
temptation of using these privileged information
• But possession of privileged information put the person in a fiduciary
position and misusing this position is a Breach of Trust and Fraudulent act
• When a company get listed - its promoters, directors and other key
employees as well as other persons who have more information than
general investors become the trustee of Investors’ interest and are in
fiduciary duty to not to use them for their personal benefit. Thus, Insider
Trading is a Crime
5. Insider Trading: International Perspective
• Initially, Insider Trading was considered fraud under Common Law in all
major jurisdictions and there was no specific law. Later with the
development of Capital Market specific laws were formulated:
• UK Common law prohibits Insider Trading. The relevant laws are
• The Criminal Justice Act 1993, Part V, Schedule 1, and
• The Financial Services and Markets Act 2000, which defines an offence of Market Abuse
• The USA Laws against Insider Trading:
• Securities and Exchange Act of 1934 (indirect)
• Insider Trading Sanction Act, 1984
• Insider Trading & Securities Fraud Enforcement Act, 1988
• United States Securities Exchange Commission Rule 10b5-1
• European Union Laws:
• European Community Directive Coordinating Regulations on Insider Trading, 1989
• Insider Dealing and Market Abuse Act of 1994
• Financial Markets Abuse Act in 2002
• EU Market Abuse Directive 2003
6. Insider Trading: Misappropriation Theory
A person commits fraud when he misappropriates confidential
information for securities trading purposes, in breach of a duty
owed to the source of information. [U.S. v. O’Hagen, 117 S.Ct. 2199, 2207
(1997)]
According to the SEC duty of trust or confidence arises when:
• Person agrees to maintain information in confidence.
• Person communicating material non-public information and person receiving
it have a pattern or practice of sharing confidences and there is an
expectation of confidence.
• Person receives material nonpublic information from spouse, parent, child, or
sibling.
7. Insider Trading: Privileged Information
Privileged Information is defined as:
“Information of a precise nature which has not been made
public, relating, directly or indirectly, to one or more issuers of
financial instruments or to one or more financial instruments and
which, if it were made public, would be likely to have a
significant effect on the prices of those financial instruments or
on the price of related derivative financial instruments”.
Same concept applies to every type of financial instrument.
A clearer definition of privileged information helps companies to
know what has to be publicly disclosed and therefore prevents
risk of insider trading.
8. Insider Trading & Corporate Governance
Insider trading has many governance implications, affecting:
• The organization of companies;
• The duties of directors of managing boards and supervisory
boards and other corporate insiders;
• The permitted flow of information within companies;
• The disclosure duties imposed to companies.
The main problem in insider trading is conflict of interests
and the misuse of power –in this case it relates to the power
over privileged information.
Therefore, there is a strong connection between corporate
governance and insider trading.
9. Insider Trading: Abstain and Disclose
EU Directive unifies treatment given to price-sensitive
information and to privileged information.
The same concept applies either to:
• information to be provided by companies; and to
• Information not to be misused by insiders.
Earlier, companies were required to disclose or abstain (to misuse information) –
rather focusing on the prohibitive side of insider trading.
Now the Directive indicates companies should abstain and disclose.
10. Insider Trading: Timely & Sufficient Disclosure
Greater concern with disclosure duties regarding privileged information.
Companies must inform the public as soon as possible of inside information
which directly concern them.
There should not Selective Disclosure;
Public access to information concerning such transactions as soon as
possible
Internet facilitates quick and cost-effective communication of price-
sensitive information to the public.
Imposes duty to disclose such information on the company’s website.
11. Disclosure of conflict of interests
Persons who produce or disseminate research concerning financial
instruments or issuers of financial instruments and persons who
produce or disseminate other information recommending or
suggesting investment strategy, intended for distribution channels or
for the public, take reasonable care to ensure that such information
is fairly presented and disclose their interests or indicate
conflicts of interest concerning the financial instruments to which
that information relates.
12. Conclusion
Based on the European experience, it is possible
to conclude that the modern approach towards
Insider Trading is:
• Broader - considering e.g. types of securities
concerned;
• More ambitious - given the range of
professionals involved (not only insiders);
• More connected with governance issues;
• Eminently preventive and more focused on
clear and effective guidance regarding timely
disclosure of price-sensitive information.
14. Evolution of Law
Securities & Exchange Board of India Act, 1992 04.04.1992
SEBI (Insider Trading) Regulations, 1992 19.11.1992
SEBI (PIT) (Amendment) Regulations, 2002 20.02.2002
SEBI (PIT) (Amendment) Regulations, 2003 11.07.2003
SEBI (PIT) (Amendment) Regulations, 2008
19.11.2008
SEBI (PIT) (Amendment) Regulations, 2011 16.08.2011
16. Rakesh Agrawal v. SEBI
MANU/SB/0208/2003
• Rakesh Agarwal, MD of ABS Industries Ltd. (ABS), was involved in
negotiations with Bayer A.G (a company registered in Germany), regarding
their intentions to takeover ABS.
• Insider trading transaction:- Rakesh Agarwal, through his brother in
law, Mr. I. P. Kedia had purchased shares of ABS from the market and
tendered the said shares in the open offer made by Bayer thereby making
a substantial profit and thus was held for acting in violation of Regulation
3 and 4 of the Insider Trading Regulations.
Hon’ble SAT held that:
- Dealing in securities while possessing the unpublished price sensitive
information is not sufficient to hold the appellant guilty.
- The dealing should result in an advantage to him.
- The law prohibits the gaining of the unfair advantage by the insider.
- The appellant has acted in the interest of the company and was not held
guilty.
17. DSQ Holdings Ltd. vs. SEBI
(Decided on 15.10.2004 SAT)
• DSQB (earlier Usta Te Biotech Ltd.) was originally promoted by KND
Engineering & Technologies Ltd., jointly with Tamil Nadu Industrial
Development Corporation. The erstwhile management in DSQB entered
into an agreement in April, 1994 with Square ‘D’ group promoted by Shri
Dinesh Dalmia. Soon thereafter, the new management announced a rights
issue which opened for subscription on 03/07/1995 and closed on
02/08/1995.
• Insider trading transaction:- The appellants were found to have traded in
the securities of the DSQB during June, 1994 to December, 1994 and also
after the closure of the Rights issue while possessing UPPSI .
SAT held that the matters regarding the Rights issue of DSQB was first
discussed in the Board Directors Meeting on 30/07/1994. Thus the period
between 31/07/1994 to 30/09/1994 was the period under the price
information on the Rights issue was "unpublished and price sensitive“.
18. Dilip S Pendse vs. SEBI
(Decided on 20.11.2008 SAT)
• Mr. Dilip Pendse was director of Tata Finance Ltd and Niskalp Investments
and Trading Co. Ltd. which is subsidiary of Tata Finance Ltd. Mr. Talaulikar was
also director of the above companies. TFL came out with rights issue between
30-3-2001 and 30-4-2001. It was observed that Niskalp, a subsidiary of TFL,
had suffered huge losses which was not disclosed in the Letter of Offer leading
to failure of offer.
• Insider Trading Transaction: Mr. Talaulikar transferred his family shares on 4-
4-2001 at a higher price while possessing UPSI that Niskalp had suffered
losses. It was alleged Mr. Pendse was guilty of Counseling and arranging
transfer of shares while in possession of UPSI.
SAT held that -
- Mr. Pendse and Mr. Talaulikar are both professionals and were insiders
therefore, Mr. Talaulikar required no advise from the Mr. Pendse as alleged.
- Mr. Talaulikar is responsible as he was the director of Niskalp at the time
when the funds were transferred.
19. Samir C Arora vs. SEBI
(decided by SAT on15-10-2004)
• The merger of Digital Globalsoft (DGL) and HP ISO (Hewlett Packard) was proposed.
Digital appointed Bansi Mehta and Co. to recommend merger ratio. The merger ratio
was discussed in the Board Meeting of DGL on May 12, 2003. The Board, however, did
not announce the merger and decided to seek fairness opinion from a third party.
Later on, on June 6, 2003 the merger ratio was announced. This resulted in fall of price
of the DGL scrip from Rs. 500.50 to Rs. 371/-.
• Insider trading Transaction: The Appellant was alleged to have sold the entire holdings
of Alliance Capital Mutual Fund & Alliance Capital Management LP between May
8, 2003 and May 12, 2003 while possessing UPPSI.
The Hon’ble SAT held that
- Information accessed was not correct information.
- There was nothing to show how the information generated by Shri Bansi Mehta
could have reached the Appellant, particularly when SEBI has nowhere doubted the
credentials of Shri Bansi Mehta and Soonawala.
- Several other funds had also sold the same scrip in the same month in substantial
numbers
20. Rajiv B. Gandhi, Sandhya R. Gandhi & Amishi B. Gandhi Vs. SEBI
[2008] 84 SCL 192(SAT)
• Rajiv B. Gandhi (Gandhi) appellant No. 1 is the Company Secretary and
Chief Financial Officer of Wockhardt Limited (for short the company).
Sandhya Gandhi appellant No. 2 is his wife and Amishi Gandhi (appellant No.
3) is his sister.
• Insider trading transaction:- The appellants had sold 3600 shares on
21.1.1999 (before the board meeting held on April 22, 1999 at 11.30 a.m
called for demerger) and 22.1.1999 (in the first half hour before the market
could react to the news) on the basis of unpublished price sensitive
information.
The Hon’ble SAT held that
- The words “on the basis of” are significant and mean that the trades
executed should be motivated by the information in possession of the
insider
- Facts necessary to establish the contrary being especially within the
knowledge of the insider, the burden of proving those facts is upon him
21. S. Ramesh, S. Padmalata and Asis Bhaumik v. SEBI
[2005] 59 SCL 521(SAT)
• Appellant, Asis Bhaumik, Executive Director of Sahney Paris Rhone Ltd
(SPRL) and S. Ramesh was the Company Secretary of the Company. He
purchased shares of SPRL through Mr. Ramesh and his wife and through
his family members in and around August 1997 at Rs. 79 and later
tendering the shares in the open offer announced by RIH on behalf of
Delco Remi Ltd. in November 1997 at as Rs. 117.40 per share.
• Alleged Violations: Appellant had unfairly gained enrichment by buying
the shares and later tendering in the offer.
SAT held that the term "insider" has the following three essential
ingredients:
- Insider is a person; and
- who is connected or 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 or who has received or has had access
to Unpublished Price Sensitive Information.
22. To sum up …..
INSIDER TRADING is the misuse of privileged position & breach of trust and
hence can disturb whole structure of Securities Market. It can also be a big
menace for small investors as they can loose their hard earned money in the
hands of corporate insiders, hence its effective prevention is very significant.
The importance of policing insider trading has assumed international
significance as regulators attempt to boost the confidence of investors
Prevention of Insider trading is necessary to create a Level Playing Field for
Investors in Capital Market
Effective measures to prevent Insider Trading would create trust &
confidence among the Investor Communities and help to develop securities
market
23. Thanking you ….
MANOJ KUMAR
Assistant Vice President
Corporate Professionals Capital Private Limited
D-28, South Extension –I, New Delhi-110 049
Ph: +91.11.40622200 | Fax: +91.11.40622201;
M: +91.9910688433 | E: manoj@indiacp.com