Insider Trading and India

Abstract

Insider Trading is essentially the trading of stocks and securities of a public company by an employee of such company or a member of such organization having access to private information about the company. Such private information could prove to be so vital potentially because it has an impact on the investment decisions of the company. Insider Trading is an act of reaping increased profits because of access to a certain piece of information that is not in the public domain and therefore not known to other investors by virtue of work affiliation of such person trading company's securities in the stock market.Insider trading creates an unlevel playing field where those key executives having access to strategic information about the company and acting on such information would win the battle of the stock exchange at the expense of the general public and other investors. Commonly discouraged throughout the world, the practice of Insider Trading is prohibited by SEBI (Security Exchange Board of India) to promote the benefit of the general investor, creation of a level playing field, and promoting fair trading practices in the stock exchange market. I. INTRODUCTION The term `insider trading' denotes buying or purchasing of shares of a specific company based on some confidential information that has not been made to the general public yet. Unpublished price-sensitive information is the title given to such information. Such activities are a breach of the fiduciary duty that an officer of any company has towards its investors. Insider trading occurs when some information that is not meant to be given to the general public is used by someone to earn profit or loss via buying or selling the shakes/stocks of the company. This practice of Insider Trading has been happening for a long time now. Their perpetrators have evolved with time and so have the laws prohibiting insider trading have. But in the modern time when the whole world is investing in shares and stocks, the risk of people getting affected by Insider trading has increased multifold. It is not like the 1990s when only a few of the wealthy families in India were involved in the stock market. The digitalization of the stock market has given everyone a chance to trade and this has increased the risk factor in the market. It has become relatively easier to use any technical loophole to 1 Author is a student at