INSIDER TRADING LAWS IN INDIA:

Most talked news of Mr. Rajat Gupta indulgence in insider trading has once again insist people to consider the existing laws on insider trading and their relevance in corporate world. Insider trading is basically the buying or selling of the securities of a listed public company by a person who has unpublished price sensitive information relating to that company. SEBI (Prohibition of Insider Trading) Regulations, 1992 was introduced in india for the first time to define and regulate insider trading. Regulation 3 prohibits an insider who is in possession of unpublished price sensitive information for directly or indirectly dealing in securities of the company. 

APPLICABILITY:- Insider trading regulation is applicable on all the listed companies.

INSIDER:- Insider is the person who is or was connected to the Company and who is likely to have the price sensitive information related to the Company.

CONNECTED PERSON:- Director of the Company and an officer/employee or any other person who hold any business or professional relation with the company in present or in past(6 months earlier to the use of price sensitive information) and who may reasonably be expected to have an access to unpublished price sensitive information in relation to that company.

PRICE SENSITIVE INFORMATION:- Means any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company. Such as discloser of financial results, declaration of dividend, bonus issue of shares, merger/demerger etc. price sensitive information are normally the information related with declaration of dividend, bonus issue of shares, merger demerger or acquisition etc.

PROHIBITION ON INSIDER TRADING: The insider is prohibited to deal directly in the securities or counsel anyone else to deal in securities on the basis of unpublished price sensitive information.

DISCLOSURE REQUIREMENTS: In 2003 SEBI (Prohibition  of insider trading) (Amendment) Regulation made it mandatory from the side of the company to give information about acquisition of shares of more than 5%, to give details of shareholding of directors or officers of the company and change in their shareholding.

DIRECTIONS BY SEBI ON CONFIRMATION OF INSIDER TRADING: 

SEBI without prejudice to its right to initiate criminal proceeding, in the interest of the investors may issue all or any of the following order:

(a)    directing the insider or such person as mentioned in clause (i) of sub-section (2) of section 11 of the Act not to deal in securities in any particular manner;

(b)  prohibiting the insider or such person as mentioned in clause (i) of sub-section (2) of section  11 of the Act from disposing of any of the securities acquired in violation of these regulations;

(c) restraining the insider to communicate or counsel any person to deal in securities;

(d) declaring the transaction(s) in securities as null and void;

(e) directing the person who acquired the securities in violation of these regulations to deliver the

     securities back to the seller :

     Provided that in case the buyer is not in a position to deliver such securities, the market price

     prevailing at the time of issuing of such directions or at the time of transactions whichever is

     higher, shall be paid to the seller;

(f) directing the person who has dealt in securities in violation of these regulations to transfer an

amount or proceeds equivalent to the cost price or market price of securities, whichever is higher to the investor protection fund of a recognised stock exchange.]

ROLE OF COMPLIANCE OFFICER (COMPANY SECRETARY) AS PER INSIDER TRADING REGULATIONS:

Amendment in the regulations made in 2002 introduced Model Code of Conduct (“Model Code”) in the said regulation to be adopted by the listed companies for prevention of insider trading. This Model Code make the discloser of information compulsory on “Need to Know” basis. As per this Model Code listed company shall appoint a “compliance officer” (in most of the cases company secretary, where there is one be appointed as the compliance officer), The compliance officer shall be responsible for setting forth policies, procedures, monitoring adherence to the rules for the preservation of “Price Sensitive Information”, pre-clearing; of designated employees’ and their dependents’ trades (directly or through respective department heads as decided by the company), monitoring of trades and the implementation of the code of conduct under the overall supervision of the Board of the listed company. It is expected from a compliance officer to keep check on any kind of leakage of unpublished price sensitive information and if he comes to know about any such leakage of information he shall take steps to close the trading window until the information becomes public.

Under whistle blower policy too if any officer/employee/compliance comes to know about any unauthorized use of unpublished price sensitive information he shall blow the whistle means tell the related authorities about such use of information.

CHINESE WALL:- is the other important concept introduced alongwith Model Code, To prevent the misuse of confidential information the organisations shall adopt a Chinese wall policy as per this concept the confidential information shall from part of the insider area and the public area people shall not be allowed access to insider area. Public area will include people working in the field of sales/marketing/investment etc. Employees working in insider area shall not disclose the price sensitive information to the employees working in public areas.

Still there are very few cases of insider trading reported to SEBI in india, and the minimum where there the director or employee have been proven to be the insider and indulged in insider trading.