Insider Trading is the trading in a security (buying or selling a stock) based on material information that is not available to the general public.
In most countries, trading by corporate insiders such as officers, key employees, directors, and large shareholders may be legal, if this trading is done in a way that does not take advantage of non-public information.
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SEBI considers an “insider” as anyone who has pertinent information that is not publicly available, and that gives the trader an advantage over public.
Thus an insider is the person who has access to “material information” of a company.
· Information that is likely to effect the stock prices once it becomes known to the public.
· Also known as material news.
· Examples include-
üA take over
üSignificant management changes
üNew product introduction
üDevelopments in ongoing lawsuit.
INSIDER TRADING REGULATION
The SEBI is empowered to take necessary measures to prohibit insider trading in securities in view of its implications for the healthy growth of the securities market, the SEBI has evolved a regulatory framework to prevent and cure the menace of insider trading.
RIGHT TO INVESTIGATE
The SEBI can also initiate prosecution against the violation of the insider trading regulation. On the basis of the prima facie opinion, the SEBI may appoint an investigating authority having experience in dealing with the problems relating to the securities market who is authorized by it to investigate.
üBefore understanding any such investigation, the SEBI should give a reasonable notice to the insider. The insider or any other person would be duty bound to produce all the books, accounts and others documents in his custody/control as well as furnish the statements/information relating to transactions in the securities market with in the required time.
üThe insider should allow it to have reasonable access to its premises and also extend the reasonable facility for examining any books/records/documents and computer data in possession of the stock brokers/any other person and also provide copies of the documents/other materials which are relevant in his opinion.
üThe investigating authority would within reasonable time of the conclusion of the investigation submit a report to the SEBI. After consideration its findings would be communicated to the person suspected to be involved in insider trading or violation of the regulations.
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What is Insider Trading?
Insider Trading is the trading in a security (buying or selling a stock) based on material information that is not available to the general public. In most countries, trading by corporate insiders such as officers, key employees, directors, and large shareholders may be legal, if this trading is done in a way that does not take advantage of non-public information.