Insider Trading

Insider Trading means trading in the shares of a company by the persons who are in the management of the company or are close to them on the basis of undisclosed price sensitive information regarding the workings of a company, listed on a recognised Stock Exchange(s), which they possess but which is not available to others.

Shareholders as well as general public gets knowledge of sensitive information related to Buyback, financial results, dividend in Annual General Meeting or Annual report disclosed in Press Release. However, person in company itself are in possession of undisclosed price sensitive information. For example, Directors, Key Managerial Person, Auditors and employees.

Possession of sensitive information unpublished makes them in advantageous position over others before disclosing. To curb the malpractices and manipulation of share prices by connected person, insider trading in India is regulated by Securities and Exchange Board of India (“SEBI”).

Insider means any person:

1. a connected person; or
2.  is in possession of or having access to UPSI.
3. An outsider i.e. a person who is not a ‘connected person’ would qualify as an ‘insider’ if such person was in possession of or having access to UPSI.

What amount to sensitive information?

• Periodical financial result of the company.
• Intended declaration of dividends.
• Issue or buy–back of securities.
• Any major expansion plans or execution of new projects.
• Amalgamation, mergers or takeovers,
• Disposal of the whole or substantial part of the undertaking
• Any significant change in policies, plans or operation of the company

Penalties:

No separate penalties have been prescribed under the SEBI (Prohibition of Insider Trading) Regulations, 2015. Any person contravening or attempting to contravene or abetting the contravention of the Securities and Exchange Board of India Act, 1992 (Act), shall be liable to a penalty under Regulation 15 G of the Act, which shall not be less than Rs. 25 crores or 3 times the amount of profit made out of insider trading, whichever is higher.

Recent cases:

• Spice Jet: ShreejeshHarindranath – General Manager Financial Planning and Treasury – Fined Rs. 23 Lakhs
• Incap Financial Services – Arvind Goyal and Pooja Goyal Fined Rs. 19.7 Lakhs and Rs 14 Lakhs
• PC Jewellers – Shivani Gupta, Sachin Gupta and others – Fined Rs. 8 crores

Investors shall trade with precaution and should not believe in rumours spread on social medias through various means such as WhatsApp groups, Telegram Channel or a on tip of broker. One should only believe the press release or annual reports released by the Company.

 

CA Shubham Chhajed