1. 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.
2. 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with the company , who could have the unpublished price sensitive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.
3. 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.
4. WHAT INCLUDES TRADING ?
5. 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.
6. 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
7. 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.
8. UNPUBLISHED PRICE SENSITIVE INFORMATION
9. 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.
10. 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.
11. CASE STUDY HLL BBLIL MERGER CASE
12. HLL-BROOKBOND LIPTON INDIA LTD 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). SEBI , suspecting insider
trading, conducted enquiries. In August 1997 , SEBI charged HLL of
insider trading by using Unpublished Price-Sensitive
Information.
13. HLL bought 8 lakh shares of BBLIL from UTI at Rs.350.35 per
share (At a premium of 9.5% of ruling market price of Rs.320) 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
insider trading. In March 1998 , SEBI passes an executive order,
which sent shock waves through the countrys corporate order. SEBI
penalized HLL with Rs. 34 million in compensation, and also
initiated criminal proceedings against the five directors of HLL
and BBLIL.
14. 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 the shares of
BBLIL moved up from Rs.242 to 320 between January and March, before
the transaction, indicating that the merger was generally known
information.
15. HLL claimed that the purpose of the purchase of shares was
to enable Unilever to acquire 51% shares of BBLIL. In July 1998,
the Appellate Authority of the Finance Ministry dismissed the SEBI
order. However, SEBI order was correctly based on a simple
proposition of Law : what can not be done directly can not be done
indirectly.
16. INSIDER TRADING THROUGH AN VISUAL EXAMPLE
17. MEET KIM & SAM
18. KIMs GOT MAIL
19. KIMs GOT MAIL
20. AT THE PUB
21. THINK ABOUT IT
22. THINK ABOUT IT
23. THINK ABOUT IT
24. RESULT
25. PENALTIES Monetary Penalty: Section 15G of the act imposes
penalty of at least Rs.10lacs,which may extend to Rs.25 Crore or
three times of profits made out of insider trading whichever is
higher. Imprisonment: Section 24 of SEBI Act even goes to the
extent of imprisonment upto 10 years or fine upto 25 Crore, or
both, for any offences pertaining to contravention of the
provisions of the Act.
26. CONCLUSION INSIDER TRADING is the misuse of privileged
position and breach of trust and hence can disturb whole structure
of Securities Market.