malpractice nsider trading is defined as awherein trade of a company’s securities is undertaken by people who by virtue of their work have access to the otherwise non-public information which can be crucial for making investment decisions.
Features of Insider Trading
- Material nonpublic information is any information that could substantially impact an investor’s decision to buy or sell the security that has not been made available to the public.
- This form of insider trading is illegal and comes with stern penalties including both potential fines and jail time in many countries.
- The question of legality stems from the attempt to maintain a fair marketplace. An individual who has access to insider information would have an unfair edge over other investors and could potentially make larger, unfair profits than their fellow investors.
- The definition of an insider can differ significantly under different jurisdictions. Some may follow a narrow definition and only consider people within the company with direct access to the information as an insider. On the other hand, some may also consider people related to company officials as insiders.
Insider Trading in India
- In India, section 11(2)(g) of Securities and Exchange Board of India Act 1992 provides power to prohibit insider trading in securities in India.
- Insider as per SEBI (Prohibition of Insider Trading) Regulations 1992 is ‘persons who are or who were connected or who are deemed to be connected to the company and have access to unpublished price sensitive information(UPSI)’.
- Insider trading is a punishable crime containing penalty of Rs 25 crore or 3 times the profit made, whichever is higher.