THE LAW RELATING TO INSIDER TRADING – THE INDIAN LANDSCAPE
In today’s day, business is expanding in the global markets and with it there is considerable amount of growth in the financial markets- Bond market, share market, derivative market. With the increase in such trading, there has been a development in one particular form of trading -Insider Trading. ‘Insider trading’ in financial markets refers to trading in securities such as equity and bonds by company insiders who have access to exclusive information about the issuer of a particular security before such information is released to the general public. This allows insiders to benefit from buying or selling shares before they fluctuate in price. Investigations in these types of transactions have proved the involvement of the high ranking officers of the companies in the crime, sophistically referred to as white-collar crime. Insider trading also disrupts the financial equilibrium in the capital market as it erodes public confidence in its functioning. The law governing insider trading generally aims to discipline the trade by baring shareholders who are in a dominant position on account of their access to non-public price-sensitive information from abusing it. Laws prohibiting insider trading animate the over-arching objective of corporate accountability and ensure higher standards in corporate conduct. Corporations have been looted by the insider traders, diversifying internal information to an external in lieu of cash. The transactions that are prohibited are the trading by an insider in breach of a duty of trust or confidence in the stock of a company based on non-public information to the exclusion of others. If such trading is allowed to go unchecked in capital markets, than all those individuals or persons who are holding the insider information will have an unfair advantage inselling or buying of the securities with such information and all those without the insider information willhave a disadvantage and will be losers in the market.This will eventually lead to investors losing confidence in the stack market and they willdesert the market, thereby eliminating and destroying important functions of the stock market such as capital formation. Insider trading has a negative or harmful impact on the growth and sustainability of the capital market more particularly the secondary market. The Securities and Exchange Board of India (SEBI) is the statutory regulatory authority regulating the capital market in India. With the intention to overcome the inadequacies of the previous regulations, SEBI notified SEBI (Prohibition of Insider Trading) Regulations 2015; to regulate Insider Trading replacing the earlier SEBI (Prohibition of Insider Trading) Regulations 1992. The article analyses the legal framework for regulating transactions wherein a corporate insider trades on information before it is disclosed to the general public. The article seeks to examine the effectiveness of the 2015 SEBI (Prohibition of Insider Trading) Regulations. The article also seeks to look into the laws regulating Insider trading in India. And make some suggestions to bring some changes to curb these loopholes in regulation.
Insider Trading, SEBI, Capital market, regulations