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Transcript of insider_trading_
INSIDER TRADING
AN OVERVIEW
o History
o Legal Framework
o Meaning of Insider Trading
o Need of Insider Trading Regulation
o Meaning of Insiders
o Connected Persons
o Price Sensitive Information
o Prohibition of Trading
AN OVERVIEW
o Free Period
o Disclosures as per Securities And Exchange Board of India (Prohibition of Insider Trading), 1992
o Penalties
HISTORY OF INSIDER TRADING REGULATION
o In 1979, the Sachar Committee recommended amendments to the Companies Act,1956 to prohibit the insider trading.
o In 1986, the Patel Committee recommended that the Securities Contracts Act, 1956 may be amended to curb insider trading and unfair stock deals.
o In 1989, the Abid Hussain Committee recommended that the insider trading activities may be penalised by civil and criminal proceedings and also suggested the Securities And Exchange Board of India (SEBI) to formulate the regulations and the governing codes to prevent unfair dealings.
o In 1992, Securities And Exchange Board of India (prohibition of Insider Trading) Regulations, came into force to prohibit insider activities.
o SEBI introduced regulations to govern Insider Trading in 1992
o Regulations modified from time to time
o Applicable to all Listed Companies
o Applicable to all Registered Intermediaries
o Regulations require Company to adopt internal code of conduct
LEGAL FRAMEWORK
MEANING OF INSIDER TRADING
Saira is an Accounts
Manager in XYZ Ltd
Sahil is her husband who runs his own recruitment consultancy firm
MEANING OF INSIDER TRADING
One fine day when Saira was checking her emails she received a mail from Secretarial Department. It contained an information that her Company is Going to buy over some another Company (takeover of a Company).
MEANING OF INSIDER TRADING
Realising that the email was sent to her by mistake , Saira deleted it and carried on with her day’s routine.
MEANING OF INSIDER TRADING
While taking dinner Saira discussed about the email she received with her husband.
MEANING OF INSIDER TRADING
Sahil made a misuse of this unpublished price sensitive
information and made profit out of it by dealing in the securities of the Company.
MEANING OF INSIDER TRADING
Would Saira and Sahil be guilty of Insider Trading?
MEANING OF INSIDER TRADING
The answer is YES. Saira and Sahil will be punished as per the Companies and SEBI’s Rules.Reasons: 1. Dealing in unpublished price sensitive information 2. Opposite Transation 3 Pre-clearance not taken
As per SEBI the prohibition of Insider Trading is required to make securities market:
oFair and Transparent
oTo have a level playing field for all the participants in market
oFree flow of information
oAvoid information asymmetry
NEED OF INSIDER TRADING REGULATIONS
An insider means any person who,
o is connected with the Company or is deemed to have been connected with the Company and is reasonably expected to have access to unpublished price sensitive information in respect of securities of a Company, or
o has received or has had access to such unpublished price sensitive information
MEANING OF INSIDERS
CONNECTED PERSON
As per Securities And Exchange Board of India (Prohibition of Insider Trading), 1992 , connected persons are as below:
o Member of the Board of Directors of the Company Officer or an employee of the Company
o Company under the same management or group or any subsidiary company thereof
o Intermediaries like investment company, trustee company,asset management Company, merchant Banker, share transfer Agent, Registrar to an issue, broker, portfolio manager, Investment advisor, banker etc
o Official or an employee of a self regulatory Organisation
o An Official of a stock exchange or of clearing house corporation
o Relatives of all the above (as per section 6 of the Co. Act, 1956)
The following shall be deemed to be price sensitive information:
oPeriodical financial results of the Company
oIntended declaration of dividends (both interim and final)
oIntended issue of securities or buy-back of securities
oAny major expansion plans or execution of new projects
oAmalgamations, mergers or take-overs
oDisposal of the whole or substantially the whole of an undertaking
PRICE SENSITIVE INFORMATION
o Any changes in policies, plans of the Company
o Revision of credit ratings assigned to any debt or equity instrument of the Company
o Litigation /dispute with a material impact
o Cancellation of dividend/rights/bonus, etc
o Any other information which materially affects the prices of the securities of the Company
PRICE SENSITIVE INFORMATION
PROHIBITION OF TRADING
oProhibited Period Transactions
Connected Person (CP) not to deal during prohibited period (CP shall be entitled to exercise the option under ESOP but cannot sale during the Period
oOpposite Transaction
CP not to buy/sell during the next six months following the prior transactions (except ESOPs)
o Any period other than the prohibited period is free period
o Share Dealing can be done in this period subject to pre-clearance from the Compliance Officer
FREE PERIOD
oInitial Disclosure (as per regulation 13(1) of the SEBI (Prohibition of Insider Trading) Regulations, 1992
Any person who holds more than 5% shares or voting rights in any Listed Company shall disclose to the Company in Form Awithin 2 working days of acquiring the shares or voting rights
Any person who is a Director or Officer (including their dependants) of a Listed Company should disclose to the Company in Form B all its trade positions in equity or derivatives within 2 days of appointment
DISCLOSURES FOR PROHIBITION OF INSIDER TRADING
o Continual Disclosure (as per regulation 13(1) of the SEBI (Prohibition of Insider Trading) Regulations, 1992
Any person holding more than 5% shares or voting rights in any listed Company shall disclose to the Company in Form C the number of shares or voting rights held or any change exceeding 2% of total shareholding or voting rights in the Company within 2 days of acquisition of shares
Any person who is a Director or Officer (including their dependants) of a Listed Company should disclose to the Company in Form D, if change exceeds Rs. 5 Lakhs in value or 25000 shares or 1% of total shareholding or voting rights whichever is lower within 2 days of acquisition or sale of shares
DISCLOSURES FOR PROHIBITION OF INSIDER TRADING
PENALTIES
o Initiate Criminal Prosecution against the defaulter
o Prohibition from Dealing in any kind of Securities
o Restraining the defaulter from any counseling to any person to deal in securities
o Null and voiding such transactions
o Penalty of Rs. 25 crore or 3 times the amount of profit made whichever is higher
o Imprisonment upto 10 years or fine upto 25 crores or both.
THANK YOU
PRESENTED BY:SHIKHA JAIN