Scribd
Upload
59 views

Price Sensitive Information: Preservation of "Price Sensitive Information: All Employees and Directors Must Maintain The

Insider trading involves company insiders like directors or employees using non-public, price sensitive information for profit in stock trades. Price sensitive information includes things like financial results, dividends, mergers, and policy changes. All employees must keep such information confidential and only share it with others on a need-to-know basis. While insider trading can be legal or illegal depending on if the information is public, illegal insider trading gives unfair advantages to insiders over ordinary investors. Regulators aim to curb insider trading to protect investors and maintain market integrity.

Uploaded by

vishalbi
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
59 views

Price Sensitive Information: Preservation of "Price Sensitive Information: All Employees and Directors Must Maintain The

Insider trading involves company insiders like directors or employees using non-public, price sensitive information for profit in stock trades. Price sensitive information includes things like financial results, dividends, mergers, and policy changes. All employees must keep such information confidential and only share it with others on a need-to-know basis. While insider trading can be legal or illegal depending on if the information is public, illegal insider trading gives unfair advantages to insiders over ordinary investors. Regulators aim to curb insider trading to protect investors and maintain market integrity.

Uploaded by

vishalbi
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

DEFINITION: It is a trading practice where any insider such as directors, managers or workers of the company use non-public information

or unpublished price sensitive information for their own advantage to reap the profits or avoid losses on the stock market.

Price sensitive information: Under the Securities And

Exchange Board Of

India(*Prohibition of+Insider Trading)Regulations,1992 price sensitive information means any information which if published is likely to materially affect the price of securities of company and such information is directly or indirectly related to the company. PRICE SENSITIVE INFORMATION INCLUDES: Periodic financial results of the company Intended declaration of dividends(both interim and final) Issue of securities or buy-back of securities Any major expansion plans or execution of new project Amalgamation Mergers or takeovers Disposal of whole or substantial part of the undertaking Significant changes in policies, plans and operations of the company

Preservation of Price Sensitive Information: All employees and directors must maintain the confidentiality of all Price Sensitive Information. They must not pass on such information to any person directly or indirectly by way of making a recommendation for the purchase or sale of securities. Price Sensitive Information is to be handled on a need to know basis and should be disclosed only to those within the company who need the information to discharge their duty. Insider trading can be legal or illegal depending on if the information used to base the trade is public. Individuals who engage in illegal insider trading attempt to benefit from trades based on information about a company not yet made public. For example, an executive of Company XYZ who purchases shares of the company based on a pending merger announcement is engaging in illegal insider trading. However, once Company XYZ has announced the merger publicly, insiders may legally trade the shares based on the information.

Insider trading is considered as an unethical practice because outsiders or an ordinary investor loses the interest in the stock market. It can also be observed that those trading on the basis of insider information have an opportunity to enter and exit at the correct time without suffering any loss

Forms of Insider Trading


There are a variety of ways that insider trading can be conducted: 1. Members of an organization purchasing a security. Employees or members of publicly traded companies are in key positions to access information that would not otherwise be available to the general public. Some of them buy and sell securities based on this information and hope to profit from it when the news is eventually released. Employees are given stock options so there are legal instances where they can purchase shares. However, the rules are complicated and the line is often blurred between what is a legal form of insider trading and what is not. 2. Professionals who do business with the corporation. Bankers, lawyers and brokers are but a few of the consultants who have access to confidential documents of their corporate clients. They may choose to abuse this privilege as an opportunity to make a quick buck through insider trading. 3. Friends, family, and acquaintances of corporate employees. Corporate employees often share information within their own circles that is not shared with Wall Street and the general public. Sometimes these disclosures are made innocently, but other times they are made with the intention of allowing their friends to trade securities with an advantage that other investors would not have. Employees may give these tips to help out a friend in a tough time or they may be asking their friends to pay them a small incentive. Employees may trade through their friends and acquaintances since they are less likely to be scrutinized by the SEC than the employees themselves. 4. Government officials. Officials of different government agencies can gain access to confidential information through the execution of their duties. They may conduct insider trading with this information. 5. Hackers, corporate spies, and other thieves. Clever criminals find a number of ways to gain access to corporate information which they can use to conduct securities fraud.

Two Categories of Insiders:


1. Primary Insiders who are directly connected to the company
2. Secondary Insiders are those who deemed to be connected with the company as they are expected to have access to unpublished price sensitive information

Why to control insider trading?


1. 2. 3. 4. To protect the general investor To protect the interest and reputation of company To maintain confidence in stock exchange To maintain public confidence in financial system as whole

Significant penalties
SEBI may impose a penalty of not more than Rs 25 Crores or three times the amount of profit made out of insider trading; whichever is higher ; or SEBI may initiate criminal prosecution ; or SEBI may issue orders prohibiting an insider or refraining an insider from dealing in securities of company

You might also like