Insider Trading



Simple Meaning of Insider Trading

To purchase and sale of shares of companies without providing any personal information.

Explanation of Insider Trading

Sometime the employees, directors, officers, other managers and lawmakers are involve company's share trading activities which is illegal in some countries like India because it decreases the trust of company in shareholders and investors. In USA, no one can hide the information for trading the stocks of companies from public because it will increase the cost of capital. Employees knows the company's shares' face value and they are interested to buy at discount. So, it may also decrease the market value of shares. Sometime, it may be reason of financial disaster.

A CEO company sometime inform and provide the confidential information of company to his relatives or indicate to buy before increasing its price with any public disclosure. All these things are included in insider trading.

Insider Trading in India

In India for stopping Insider trading,  SEBI has strict rules regarding insider trading. SEBI says in clear words in his PDF notification

" No insider shall—
(i) either on his own behalf or on behalf of any other person, deal in securities of a company listed on any stock exchange 17[when in possession of] any unpublished price sensitive information.
SEBI also have right to punish illegal insider traders by penalizing and other legal actions.

6.0 Penalty for contravention of code of conduct.

6.1 Any employee/officer/director who trades in securities or communicates any information for trading in securities in contravention of the code of conduct may be penalised and appropriate action may be taken by the company.

6.2 Employees/officers/directors of the company who violate the code of conduct shall also be subject to disciplinary action by the company, which may include wage freeze, suspension, 53[ineligible] for future participation in employee stock option 54[plans], etc.

6.3 The action by the company shall not preclude SEBI from taking any action in case of
violation of SEBI (Prohibition of Insider Trading) Regulations, 1992.
New Decision of SEBI Against Indian Inside Trader


You had read yesterday news in which SEBI had decided to penalise of Rs 1 cr for insider trading on Adlabs founder.

Adlabs Founder found Inside Trader


Business Line Newspaper Covered it with following way

The Securities and Exchange Board of India has found Adlabs founder, Mr Manmohan Shetty, guilty of insider trading and slapped a fine of Rs 1 crore on him.

According to SEBI, Mr Shetty had violated the 24-hour embargo on directors, officers or designated employees of a company from undertaking any transactions when important corporate announcements are made. The regulator observed that Mr Shetty had sold 10 lakh shares of his company through his broker Gupta equities Pvt Ltd on BSE in two tranches. The first tranche of 7.5 lakh shares was sold between 10.11 and 10.13 a.m. The second tranche of 2.5 lakh shares was sold just after 3.15 p.m. the same day. The sale of these shares was reported to the Bombay Stock Exchange under bulk deal. The analysis of the order log on April 24, 2006 and the demat statement of Mr Shetty confirmed the transaction.

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