Project Report on Insider Trading in India

Abstract

It was only about three decades back that insider trading was recognized in many developed countries as what it was - an injustice; in fact, a crime against shareholders and markets in general. At one time, not so far in the past, inside information and its use for personal profits was regarded as a perk of office and a benefit of having reached a high stage in life. It was the Sunday Times of UK that coined the classic phrase in 1973 to describe this sentiment - "the crime of being something in the city", meaning that insider trading was believed as legitimate at one time and a law against insider trading was like a law against high achievement. "Insider trading" is a term subject to many definitions and connotations and it encompasses both legal and prohibited activity. Insider trading takes place legally every day, when corporate insiders - officers, directors or employees - buy or sell stock in their own companies within the confines of company policy and the regulations governing this trading. It is the trading that takes place when those privileged with confidential information about important events use the special advantage of that knowledge to reap profits or avoid losses on the stock market, to the detriment of the source of the information and to the typical investors who buy or sell their stock without the advantage of "inside" information. Almost eight years ago, India's capital markets watchdog - the Securities and Exchange Board of India organised an international seminar on capital market regulations. The scope of this paper would be restricted to India however reference would be made to foreign jurisdictions to have a better clarity to understand the topic. The important issues would be highlighted at length in the paper and the researcher would try to come up with solutions pertaining to these issues. An attempt would also be made to understand the relevant laws on this topic and the researcher would also try to point out the lacunae in these laws.