Insider trading is the buying and selling of securities based on information that has not been made available to the general public. Learn more about what insider trading is and how it can affect your investing strategies. Read about the laws and the mistakes of others who were caught.
We often hear that Some body was arrested due to insider trading activities while discussing about the security market.
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Meaning of Insider Trading :
Insider trading is an activity of buying or selling of a security in which the interest of public is there, by someone who has access to material and non-public information about the security.” That information is called as unpublished price-sensitive information.
An ‘unpublished price sensitive information means information pertaining to the present or probable future condition of the company, that can potentially and materially affect the value of the securities of the company in the stock market, that has not been available to the general public and stakeholders of that company.
“It is a malpractice wherein buying or selling of a company’s securities is undertaken by people who by virtue of their work have access to the non-public and confidential, material information which can be crucial for making investment decisions.”
Prohibition by SEBI :
Securities and Exchange Board of India has prohibited insider-trading. This is to promote fair trading in the market for the benefit of the common investor.
When insiders, like key employees, key management or executives and auditors who have access to the strategic information about the company, use the same for trading in the company’s stocks or securities, it is called insider-trading.
Legal insider trading :
All types of insider-trading is not illegal. for example
when corporate insiders officers, directors, and employees buy and sell the securities of the company where they are working in by binding the rules laid down by Regulatory authorities (SEBI) then it is not an illegal activity.
To keep their trading activity legal, these insiders must report the trades to the securities and Exchange board of India.
Most famous insider trading cases in India :
- Rakesh Agarwal vs. SEBI
- Samir C Arora Vs. SEBI
- Case of insider-trading Hindustan Lever Limited – Brooke Bond Lipton India Limited
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