Insider

Trading
A Moral Problem
Presented by IIFM
Student
Saurabh Saraf

Insider Trading
Insider trading is the trading of a stock or
other securities by individuals with potential
excess to non-public information about the
company.

Type of Insiders

Primary Insider
Classic
Corporate
Insider
Director
Officers
Shareholder
Holding
substational no of
shares (10%)

Constructive
Insider
Not employee
but received
important info.
Lawyers
Investment
Banker
Professional
Adviser

Secondary Insider

Tipee

Accident
al
Insider
Not liable
for insider
trading
unless
their
behavior
proves
otherwise

Legal v/s Illegal Insider Trading

Legal Insider Trading
- Trading after due disclosures
- Trading by accidental insiders
- Trading by tippees without a fiduciary duty
Illegal Insider Trading
- Trading in violation of the rules & regulations
- Trading by tippee knowing that the tipper is
violating a fiduciary duty

Insider SEBI Definition

Connected Person
Director
Officer
Professional relationship with
the company

Deemed to be Connected
Entities where
connected
Person
persons/deemed to be
connected persons have >
10% interest.
Relatives of connected
persons
Banker to the company
Relative of the above
Official/employee of an SRO
Director/employee of public
financial
Institution
Specified Intermediaries
Companies under the same
management

Penalties
Disciplinary action by the company include:
Wage Freeze.
Suspension.
ESOP (Become Ineligible).
Monetary penalties.
Any action by SEBI (Regulation 1992).

CODE OF CONDUCT FOR PREVENTION OF

INSIDER TRADING FOR LISTED COMPANIES.

Compliance Officer
Preservation of Price Sensitive Information
Need to know
Limited access to confidential information
Prevention of misuse of Price Sensitive Information (Restriction to
Director/employee from trading)
Trading window
Pre-clearance of trades
Other restrictions
Minimum requirement of 30 days for holding investment
Waive condition by Compliance officer.
Reporting Requirements for transactions in securities

CODE OF CONDUCT FOR PREVENTION OF

INSIDER TRADING FOR OTHER ENTITIES

Compliance Officer
Preservation of Price Sensitive Information
Need to know
Limited access to confidential information
Chinese Wall
Prevention of misuse of Price Sensitive Information.
Pre-clearance of trades
Restricted/Grey list
Other restrictions
Minimum requirement of 30 days for holding investment
Waive condition by Compliance officer.
Analysts, if any, employed of organization while preparing research report
shall disclose their holding/interest in such company to CO
Analysts who prepare research report of a listed company shall not trade
in securities of that company for thirty days from preparation of such
report.
Reporting Requirements for transactions in securities

Why forbid Insider Trading?

It hampers the growth of the Market.

Unfair competition to speculators outside the

Company.
It undermines investor confidence in the fairness
and integrity
of the securities market.
Financial loss to Investors.