Insider Trading

July 26, 2022

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In News

Several Indian-origin persons have been charged in the US with insider trading in two separate alleged schemes in which they made more than five million dollars in illegal profits.

About Insider trading

It basically refers to the buying, selling or trading of shares or other securities (such as bonds or stock options) of a listed company using unpublished price-sensitive information (UPSI) that can affect the stock price that has not been disclosed yet.
Insider trading hurts the integrity of capital markets.
Measures
- To prevent such acts and to promote fair trading in the market for the interest of common investors, the stock market regulator Sebi (the Securities and Exchange Board of India) has prohibited the firms from purchasing their own shares from the secondary market.

Unpublished price-sensitive information (UPSI)

UPSI refers to a piece of exclusive information related to a firm’s stock prices, quarterly results, acquisition deals, mergers or any kind of sensitive activities that have not been shared with the public at large.
- When insiders are able to access the UPSI, they illegally conduct trade dealings for personal gains.

‘Insider’

SEBI regulations define an ‘insider’ as someone who is a connected person or has access to UPSI.
- A connected person can be anyone who during the six months preceding the insider trade has been associated with the company in some way.
- This could be a company director or employee or their close relatives, or a legal counsel or banker to the company or even an official of the stock exchanges or trustees or employees of an asset management company who interacted with the company.

Source:IE