“Unless you can watch your stock holding decline by 50 per cent without becoming panic-stricken, you should not be in the stock market.” - Warren Buffett

Why Insider trading is considered illegal in India?

The law defines what constitutes an "insider" to include "anyone who has or has access to undisclosed price-sensitive information" irrespective of how "they have or have access to such information". Insider data is "material" if its publication/release influences the stock price of a company.

What insider trading mean?

The unethical malpractice of trading in the company’s stocks or securities to one's own benefit by accessing confidential or non-public information is called insider trading. There could be ‘X’ no. of ways to violate norms.

Non-public information meaning the data is not legally accessible in the public domain. Information includes performance criteria, such as financial transactions, market disturbances, material contracts, etc. and allows a person to predict and anticipate unforeseen benefits, and thus schedule their trade and hence influence investors generally who are unaware of such information in the market.

Insider trading practices are greatly discouraged by the Securities and Exchange Board of India (SEBI) to facilitate fair trade in the market for the shake of the common investor. Since confidential knowledge gives an investor an advantage over others, it is illegal and punishable by law. However, the first nation to successfully counter insider trading was the United States. It is discussed in India in section 11 of the 1956 Companies Act and is provided in more detail in SEBI 's Prohibition of Insider Trading Regulations.

The securities market's smooth operation and its stable growth and development depend on a wide range of factors like honesty, ethical policies, transparency, etc. Such a market alone will inspire investor trust. Insider trading leads to a lack of confidence in the stock market by investors because they assume that the market is rigged and only the few who have inside data gain and make profits from their investments.

Who can have accessed this non- public information?

• Friends, business partners, family members, and option "tippees" of such officials, chiefs, and representatives who traded the securities once accepting such information. 

• Employees of banking, financier, and printing organizations who got such information to deliver administrations to the company whose protections they recorded. 

• Former or current Government representatives who scholarly of such information because of their work in the government 

• Persons who misused, and exploited, classified data from their bosses

How to handle Insider Trading?

Corporations should take all sorts of precautionary steps to defend themselves from the SEBI investigation for insider trading and other regulatory action, such as reviewing their internal controls and revising the organization’s insider trading policies. The organization must ensure that the policy should be made in such a way that it should properly address and discourage exchanging price-sensitive information. That is why companies are forced to review their additional policies in the light of their current business practices also warranting that workers are fully informed of and comply with those policies.

Strong corporate governance certifies:

• Suitable disclosures and successful decision-making to accomplish corporate goals.
• Company transaction transparency.
• Statutory and legal compliances.
• Shareholder interest protection.
• Dedication to values and entrepreneurial business ethics

• In 1992, the first few laws addressing insider trading were enacted in the form of the Securities and Exchange Board of India ("SEBI"), Act 1992 ("SEBI Act") and (Prohibition of Insider Trading) Regulations, 1992
• To ensure fair practices in the market, Sebi formalized an informant mechanism in August 2019, under this, if the tip-off given by informer leads to progress in investigating an alleged case of insider trading, Sebi will reward an informant up to 1 crore.
• Firstly, Sebi tries to classify who is an insider, typically who is in the key managerial personnel of a listed company. Lastly, it sees who traded based on the information.
• Section 15(G) -The Sebi Act provides for fines of up to Rs 25 crore, or three times the amount of insider trading income, whichever is greater. The Act further stipulates that insider trading is punishable by up to 10 years in prison
• SEBI (Prohibition of Insider Trading) Regulations, 2015, replaced the SEBI (Prohibition of Insider Trading) Regulations, 1992

One of the strong reasons for these low prosecution is that the SEBI has been granted basic investigative powers only, even they cannot tap phone records hence it becomes tough to detect and punish. Due to the lack of appropriate surveillance resources, challenges in establishing ties, and gathering evidence, Sebi has failed to unravel a complete case.

Not only can successful enforcement of legislation serve to penalize the guilty, but it will also act as a deterrent. It is also argued that because of a lack of apprehension, an offence such as insider trading occurs. It is, therefore, necessary for the regulator not to allow such a situation to continue in which people violate the rules of the game

We as a society, regulatory bodies should convey our actions that India has zero-tolerance for economic offences that increases economic inequality. Law enforcement officials should come forward and demonstrate by action that the law and rules apply to all irrespective of what they meet and what they can access.