Insider trading in securities may occur when a person in possession of material unpublished information about a company trades in the company’s securities and makes a profit or avoids a loss. Corporate insiders like officers, directors and employees by the virtue of their position have access to confidential information about the corporation and may misappropriate that information for profits or to avoid loss. Insider trading means trading or dealing in certain securities through a recognized stock exchange or through off market dealing on the basis of what they know to be unpublished price sensitive information in relation to the securities. It also means procuring other persons so to deal in the securities and from communicating the information to other information. By having knowledge of inside information such as increase in share price, proposed merger and arrangement, expansion schemes insiders or connected persons are able to make large gains through market operations. It was held in Carrion Investment Ltd. v. Wong[1] “ where the directors had committed a breach of their judiciary duties by wrongful use of confidential information and their speculation in the company’s shares, it was held that this was a breach of trust and not breach of contract and therefore there was no limitation period for proceeding against them.”
[1] (1987) LRC (Comm) 794.
The trading is illegal when an Insider or deemed to be insider of public limited company trade in the securities of their company on the basis of unpublished price sensitive information for the intention of making profit or avoiding loss. SEBI and Companies Act, 2013, both have defined insider as a person connected to or deemed to be connected and has reasonable connection with unpublished price sensitive data of the company. The Securities and Exchange Board of India finally notified the SEBI (Prohibition of Insider Trading Regulations) 2015 on January 15, 2015 replacing the two-decade old insider trading norms in India.
Post Contributed by:
Miss Kaushiki Brahma
Assistant Professor of Law
Indian Institute of Legal Studies
