This document presents a study on insider trading. It defines insider trading and outlines the objectives of studying it. It discusses the various forms insider trading can take, such as by corporate employees, consultants, friends and family of employees. It explains the regulatory aspects of insider trading in India including the definitions of unpublished price sensitive information and continuous disclosure requirements. The document analyzes why insider trading needs to be curbed and presents two case studies as practical examples. It concludes by discussing challenges faced by SEBI in investigating insider trading cases.

1. Presented by – Prince Raj & Team PRESENTED TO-RAKESH SIR
Presentation on

2. Structure of Presentation:-
Objectives of Study
 Introduction
 Forms of Insider Trading
Regulatory aspects of Insider
Trading
 Why to curb Insider Trading?
Case Studies

3. Objectives of Study:-
To know the
basic
concepts of
insider
trading.
To analyse the
role of SEBI in
minimizing
such Insider
Trading cases.
To suggest
ways to
minimize and
eliminate
cases of
Insider
Trading.
To analyse
different
cases of
Insider
Trading.
Analysing the
impact of
Insider
Trading on the
stock market.

4. Introduction:-
 Insider trading is defined as using unpublished price sensitive information
to deal in securities of a company for one’s own benefit.
 In India, insider trading was earlier governed by SEBI through its Securities
And Exchange Board of India (Prohibition of Insider Trading) Regulations,
1992. However, in November 2014,SEBI issued new Regulations called
Securities And Exchange Board of India (Prohibition of Insider Trading)
Regulations, 2015 for prohibiting the insider trading (last amended on AUG
05, 2021).
 Under these Regulations an “Insider” is defined as: "any person who is (i) a
connected person ,or ; (ii) in possession of or having access to unpublished
price sensitive information (UPSI)”
 The new regulations have been aimed at making the Indian market more
transparent and provide a level-playing field to all traders and investors

5. Profession
al/consulta
nts
Members of
an
organisation
Forms of Insider
Trading:-
Forms
of
Insider
Trading
Friends/famil
y of
employee’s
Government
officials
 Corporate employees often
share information within their
own circles that is not shared
with Stock Market and the
general public.
 Officials of different government
agencies can gain access to
confidential information through
the execution of their duties.
They may conduct insider trading
with this information.
 Employees or members of publicly
traded companies are in
key positions to access
information that would not
otherwise be available to the
general public.
 Bankers, lawyers, paralegals, and
brokers are but a few of the
consultants who have access to
confidential document of their
corporate clients.

6. Why to curb Insider
Trading?
 Prohibition of Insider Trading is required to make
Securities market:-
 Fair &
Transparent.
 To have a level playing field for all the
participants in the market.
 For free flow of information and avoid
information asymmetry.
 To prevent insiders from making huge profits or save
tremendous loss when the public cannot react to this
information.

7. Regulatory aspects of Insider
Trading:-
 What is UPIS (Unpublished Price Sensitive
Information)? :-
 The price sensitive information is defined in Regulation 2(h)(a) of
the prohibition of Insider Trading “ It means any information
which relates directly or indirectly with the company & which if
published is likely to materially affect the price of the security’s
of the company”.
 Unpublished information means information which is not
published by the company or it’s agents.
 Speculative reports in print or electronic media shall not be
considered as published information.

8. Informations which are deemed to be
price sensitive:-
 Periodical Financial Results.
 Intended declaration of the dividends( both
interim and final).
 Issue of securities or buy back of securities.
 Any major expansion plans or execution of new
projects.
 Amalgamation & mergers or takeovers.
 Disposal of the whole or substantial part of the
undertaking.
 Any significant changes in the policies, plans or
operations of the company.

9. Regulation for prohibition of
Insider Trading:-
 Regulation 3:-
 No insider should deal in security while possession of
UPSI.
 He/she should not communicate to procure the
UPSI to others.
 Regulation 3B:-
This regulation enables a company to defend itself in a
proceeding involving insider trading if it can prove that there is
a “Chinese Wall” within the company.

10. Disclosures for prohibition for Insider
Trading(under regulation 7):-
 Initial disclosures:-
 Buying the stake greater than the 5% of the paid up capital of
the company, the acquirer should inform the Stock Exchange
within two working days of acquiring the stake.
 The new director should disclose all its trade position in
equity or derivatives within two working days of his
appointment.
 Continuous
disclosures:-
If the shareholder holds more than 5% and changes his holding
by 2% or more.

11. Disclosures for prohibition for Insider
Trading(under regulation 7) continued:-
 Continuous disclosures:-
 Any change of promoter/director/officer beyond Rs 5 lac or
25000 shares or 1% of total shareholding or voting rights
whichever is lower, it must be disclosed.
 Additional
disclosures:-
 All holdings in securities of that company.
 Periodic statements of all
transactions.
 Annual statement of all holdings.

12. Investigation of Insider
Trading:-
 Regulation 4a deals with the power to make inquiries and
inspection.
 Sebi can also appoint outside auditor for the enquiry and
auditing, and the auditor would have all the power that
SEBI possess.
 Before undertaking any investigations SEBI shall give a
reasonable notice to insider for that purpose.
 Where SEBI is satisfied that in the interest of the investors
or in public interest no such notice should be given, it may
by an order in writing direct that the investigation be taken
up without any notice.

13. SEBI’S power to make inquiries and
inspection:-
 Regulation 4a:-
 If SEBI suspects that any person has violated any provision of
these regulations , it may make inquiries with such persons.
 The SEBI may appoint officers to inspect the books and
records of insider(s) for the purpose of inspection.
 The SEBI can investigate and inspect the books of account,
either records and documents of an insider on prima facie.
 SEBI can investigate into the complaints received from
investors, intermediaries or any other person on any matter
having a bearing on the allegations of insider trading.

14. Penal provision’s for Insider
Trading :-
 INDIA:-
 Civil Proceedings : Fine of up-to RS250 million or three times
the amount of profit made or loss avoided out of Insider
Trading. Under SEBI (Prohibition of Insider Trading)
Regulations, 2021.
 BRITAIN:-
 Criminal and Civil Proceedings : Maximum allowable prison
sentence of 7 years or unlimited fine. Under Financial
Services & Markets Act, 2000.
 UNITED STATES:-
 Criminal and Civil Proceedings : Maximum allowable prison
sentence of up to 20 years and fine up to three times of
profit made or loss avoided. Under Exchange Act,1934.

15. Practical cases studies on Insider
Trading:-
a). HLL and BBLIL Merger Case:-
b). Rakesh Agarawal v/s SEBI:-

16.  In August 1997, SEBI charged HLL of insider trading by using
Unpublished Price Sensitive Information.
HLL-BBLIL Merger Case:-
 HLL bought 8 lakh shares of BBLIL from UTI at Rs 350.35 per share
(At a premium of 9.5% of the ruling market price of Rs320) just two
weeks before the formal announcement knowing that the HLL and
BBLIL were going to merge.
 SEBI held that HLL was using unpublished , price sensitive
information to trade , and was therefore guilty of InsiderTrading.
 SEBI directed HLL to pay UTI Rs 3.4 Crore in compensation, and
also initiated criminal proceedings against the five directors of HLL
and BBLIL.

17. HLL-BBLIL Merger
Case(continued):-
 HLL appealed against the SEBI verdict to the Union
Ministry of Finance.
 HLL contended that before the transaction, the merger was the
subject of wide speculation by the market and the media.
 After the formal announcement, press articles mentioned that
the merger was no surprise to anyone.
 HLL pointed out that the share price of BBLIL moved up from Rs
242 to Rs 320 between January and March, before the
transaction, indicating that the merger was “ generally known
information”.
 HLL contended that to be considered as an insider, it should
have received information “by virtue of such connection” to
the other company.

18.  According to HLL, it was an initiator and the transferee, and it was
the “primary party” to the merger and no primary party to the merger
can be considered an insider from the point of view of InsiderTrading.
HLL-BBLIL Merger
Case(continued) :-
 HLL argued that only the information about the swap ratio could be
deemed to be price-sensitive and that this ratio was not known to
HLL or its directors before the purchase of shares from UTI.
 HLL also argued that the news of merger was not price-sensitive as it
had already been announced by the media before the official
announcement and claimed that the purpose of the purchase of
shares was to enable Uniliver to acquire 51% shares of BBLIL.
 In July 1998, the Appellate Authority of the Finance Ministry
dismissed the SEBI order.

19. Rakesh Agarwal v/s SEBI :-
 One of the most famous case highlighting the vulnerability of
the SEBI’S 1992 regulation.
 Rakesh Agarwal, MD of ABS Industries LTD. was involved in
negotiations with Bayer A.G, regarding their intention to
takeover ABS.
 As per SEBI, Rakesh Agarwal had access to the Unpublished
price-sensitive information.
 SEBI alleged that prior to the announcement of acquisition,
Rakesh Agarwal, through his brother-in-law, had purchased
shares of ABS and tendered the said shares in the open offer
made by Bayer.
 Rakesh Agarwal contended that he did this in the interest of
the company.
 Pursuant to Bayer’s condition to acquire at least 51% shares of
ABS, he, through his brother-in-law bought the shares and sold
them to Bayer.

20. Rakesh Agarwal v/s SEBI
(continued) :-
 The SEBI directed Rakesh Agarwal to “deposit Rs 34,00,000
with Investor Education & Protection Funds of Stock Exchange,
Mumbai and NSE”.
 SAT (Securities Appellate Tribunal) held that the SEBI order
directing Agarwal to pay Rs 34 lakh could not be sustained, on
the grounds that Rakesh Agarwal did that in the interests of
the company.
 The matter was then settled on consent basis and Mr. Rakesh
Agarwal paid Rs 48 lakhs.

21. Challenges in front of SEBI
:-
 SEBI faces several challenges in establishing links and procuring
proof while probing insider trading cases, due to which
investigation into such cases takes much longer time than in
other cases of market manipulation.
 The insider trading is mainly carried out in a clandestine
manner and the wrongdoers typically use proxies for
communicating the relevant information and for executing the
trades. Inadequate data to prove connections.
 The non-availability of telephone and e-mail records.
in
 Multiple layer of bank transaction , inadequate info in bank
statements.

22. Conclusion :-
 Despite having experience and advancement in technical
finesse SEBI could not untangle the corruption web of insider
trading in Indian stock markets. Are they simply Incompetent
are they diligently insincere ? I would say both.
 It took SEB It till the year 2008-09 to realize that the term
“insider trading” did not literally mean “insiders with in the
company” who traded the company’s shares based on
information, but actually mean biased trades by anybody –
inside or outside the company – who was in the know of
“insider” information about the company that had the capacity
to influence stock prices
 While SEC keeps coming out with stock market reports on each
insider trading, there’s something more that SEC does, the
absence of which should make SEBI question itself. And that is,
an investigation of SEC’s own processes on where it went wrong