Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

Layman’s Guide To The World Of Insider Trading

2 min read

In the world of investment, the term of insider trading has created quite a buzz. It is a word that can be commonly heard from the investors. Well, this is such a term which means selling of the stock of a company with which the individual is associated. The transaction can be conducted by the officers, employees and the directors that are associated with the company in question. Now, in this respect it is needed to be mentioned that when the trading is done through the means of their personal securities of the people, then that needs to be reported to the SEBI. It is necessary for you to understand all the aspects related with this process, to avoid stepping in the illegal side of this process.

SEBI Insider Trading Definition

 
A look at the illegal side

Knowing about the situation when the insider trading is considered to be illegal will help you in bracing yourself from unwanted hassles. When the insider trading breaches the fiduciary duty or the relationship of trust, then it is considered to be illegal. Also, the same is considered in terms of breaking of the confidence during the trading while the personal have the procession of the material related with trading. The possession of information which is nonpublic about the process is also considered to be illegal. The other kind of violation of law includes the aspect of ‘tipping’ of such information. Moreover, it also can be a person dealing with the trading process.

Who is an insider?

The personnel who is working in the company or is associated in the company can get the labeled of being an insider. However, they need to have access to such information which can have an influence in the decision making process of the investors. Also, the information that can influence the price of the stock and persons having that information will be considered as an insider. Besides that, the personnel who have information access in a temporary form are also considered to be an insider for the company. The determination of the insider is done in accordance with the parameter published from SEBI.

The implications of violation of insider trading

There are different situations in which an individual or group of individuals can be considered liable for the breaching of law regarding the aspect of insider trading. There have been numerous cases in the recent time. The cases against the officers and directors of an organization were made for trading of the securities after having a detailed knowledge about the confidential corporate developments. Also, those individuals were accused who already had access to the information from the ‘tippers’, or the associates of someone that have the confidential information about the trading. The government employees having access to the valuable information has also been considered to be a faulty party in many of the cases. In simple words, the person who has information about the trading which is not known to the public cannot act as a participating party.

Insider Trading Recent Case Study

Very recently junior and midlevel employees of some of India’s top corporates such as Wipro, ITC and M&M were flummoxed when they were pulled up by the market regulator SEBI.

Sebi imposed a fine of Rs 2 lakh on a general manager of Mahindra & Mahindra for selling 644 shares of M&M during the silent period — the ‘no transaction period’ that precedes events such as quarterly results and annual general meetings. In another order, an HR manager at ITC was fined Rs 5 lakh for not disclosing the sale of 10,000 ITC shares to exchanges within the stipulated time. An official of Wipro was told to cough up Rs 5 lakh for selling 8,000 Wipro shares in violation of Insider Trading Regulations. (The employees concerned are not being named as the violation is technical in nature). – Economic Times

The consequences

The result of getting involved in the violation of the law regarding the insider trading can result in both civil, as well as, criminal charges. This is a lucrative option as long as it is conducted under the perimeter of law.

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

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