Wednesday, August 17, 2016

Checklist on Insider Trading Regulations


Insider refers to any key person who has knowledge and cognition of what important decisions are taken by the Management of the Company and what impact it will create over the prices of the securities.
Trading in general sense refers to buying and selling of securities.

Grouping together both the words, the phrase “ Insider Trading” can be defined as buying or selling of any security by any person who has access to and is known to any kind of price sensitive information regarding the day to day affairs of the company, which they possess but which is not available to others.

For the first time, the concept of Insider trading came into existence in the year 1940’s when the Thomas Committee of 1948 constituted by the Government, evaluated the regulations in the US and thereafter, provisions relating to Insider Trading were enacted in the Companies Act, 1956 through Sections 307 and Section 308, which required shareholding disclosures by the directors and managers of a company.

The Indian Securities market at that time was growing by leaps and bounds and eventually this lead to inadequacy in the completeness of the provisions of the companies Act, 1956, the Sachar Committee in 1979, the Patel Committee in 1986 and the Abid Hussain Committee in 1989 put forth the recommendations for enactment of separate regulations for Insider Trading which ultimately lead to the formulation of the SEBI (Insider Trading) Regulations in the year 1992, which were further amended in the year 2002 after the discrepancies observed in the 1992 regulations in the cases like Hindustan Levers Ltd. vs. SEBI, Rakesh Agarwal vs. SEBI, etc. to remove the loopholes in the Regulations of 1992.
Further this regulations were polished by way of enacting the SEBI (Prohibition of Insider Trading Regulations) 2015 (“Regulations”) on January 15, 2015 which became effective from May 15, 2015, the provisions of which were recommended by an 18 member committee (“Committee”) constituted by SEBI under the chairmanship of Justice N.K. Sodhi, former Chief Justice of the High Courts of Kerala and Karnataka, which were approved by the SEBI Board in its meeting held on November 19, 2014 (“Board Meeting”).

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