INSIDER TRADING

PRESENTED BY :PALLAVI

INSIDER TRADINGInsider Trading is the buying , selling

or dealing in securities of a listed company by a director , member of

management , employee of the company , or by any other person such

as internal auditor , advisor , consultant , analyst etc, who has

knowledge of material inside information which is not available to

general public.

• It is illegal• Unfair to other investors who do not have

access to the information.• It is breach of a fiduciary duty or other

relationship of trust, and confidence.• It is a crime if made to get wrongful gain or

avoid losses

1. Corporate officers - directors and employees who , traded

the company’s securities after learning of significant,

confidentiality corporate developments;

2. Employees of law, banking , brokerage and printing

firms- who were given such information to provide services

to corporation whose securities they traded;

3. Government employees – who learned of such information

because of their employment by the government?

ADVANTAGES OF INSIDER TRADING

• Mass security transaction• Tiny investors to benefit• Benefits the institutional buyers

DISADVANTAGES OF INSIDER TRADING

• Stockbrokers, informers and frauds manipulate the security markets by leaking information.

• Spread out rumour about a insider transaction.

• Enhance the risk for stock market crash.

• Leads to a decrease in the overall trust in the market.

CASE STUDY :- HINDUSTAN UNILEVER LIMITED V/S SEBI• Insider trading charges against HLL with

regard to its merger with Brooke Bond Lipton India Ltd. 

• legal controversy surrounding these charges.

HLL V/S SEBI• HLL's purchase of 8 lakh shares of BBLIL two

weeks prior to the public announcement of the merger of the two companies (HLL and BBLIL).

• SEBI, suspecting insider trading, conducted enquiries,

• SEBI issued a show cause notice to the Chairman, all Executive Directors, the Company Secretary and the then Chairman of HLL.

• SEBI passed an order charging HLL with insider trading. 

ISSUES INVOLVED IN THE CASE

1) Whether HLL was an insider or not?2) Whether or not the pre-merger

information HLL had access to was ‘Unpublished’?

3) Whether HLL had any price sensitive information with regard to the merger?

4) Whether or not HLL had gained any unfair advantage out of the deal?

RESPONSE OF UNION FINANCE MINISTRY

• Union ministry upheld HLL’S view that the merger was “generally known” as it was widely speculated in national media.

• As per the ministry, SEBI should gather conclusive evidence and should present strong case to support its arguments.

• Still further the SEBI suffered from procedural deficiencies and prosecuting and penalizing HLL was beyond there jurisdiction.

• Stance taken by the ministry to treat the merger as ‘generally known information’ is appropriate, as it was being widely speculated in the media and any investor could use the same.

STEPS TO CUT DOWN ON INSIDER TRADING

• Companies need to keep a close eye on external parties such as advisers and consultants.

• Having an internal watchdog is a good idea.

• Time to carefully review analysts’ reports for possible information leaks.

• Third-party verification

• Corporate code prohibiting insider trading

• Phone tapping & surveillance

• Punishment

HOW INSIDER TRADING IS CONNECTED WITH CORPORATE LAW

• Conflict of interests and the misuse of power

THANK YOU !!!!!