Description

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Picture Courtesy: THE HINDU

Context:

Securities and Exchange Board of India (SEBI) alleges insider trading by Pranav Adani in Adani Green’s SB Energy deal.

What Is Insider Trading?

Insider trading happens when someone buys or sells a company’s stocks or securities using secret, non-public information that can affect the company’s stock price.

This information, called Unpublished Price-Sensitive Information (UPSI), includes details like upcoming financial results, mergers, acquisitions, or major business deals not yet shared with the public.

This practice is illegal in most countries. In India, the Securities and Exchange Board of India (SEBI) regulates insider trading under the SEBI (Prohibition of Insider Trading) Regulations, 2015. SEBI considers it a serious malpractice because it erodes investor confidence and harms market integrity.

Key Features of Insider Trading

Unpublished Price-Sensitive Information (UPSI): This includes any non-public data that can impact a company’s stock price, like:

Quarterly or annual financial results.
Mergers, acquisitions, or divestitures.
Major management changes or new contracts.

Who Are Insiders?

Primary insiders: Company directors, executives, or employees with access to UPSI.
Secondary insiders: Friends, family, or consultants who receive tips from primary insiders.
Even outsiders, like government employees or analysts, can commit insider trading if they misuse confidential data.

Legal v/s Illegal Trades

Legal insider trading: Insiders like employees often own company stocks or stock options. They can trade these legally if they follow regulations, like disclosing trades to SEBI or the U.S. SEC and avoiding UPSI. These trades are reported publicly (e.g., via SEC filings in the U.S.).
Illegal insider trading: Trading based on UPSI or tipping others to do so.

Consequences

In India, SEBI can impose fines, ban individuals from trading, or seize illegal profits (disgorgement). Violators may face imprisonment of 1–5 years and fines up to three times the illicit gains.
In the U.S., penalties include huge fines and up to 20 years in prison for securities fraud.

Must Read Articles:

Securities and Exchange Board of India (SEBI)

Source:

THE HINDU

PRACTICE QUESTION

Q. Which of the following best defines "insider trading"?

A) Buying or selling shares based on publicly available information.

B) Trading by company employees using non-public, price-sensitive information.

C) Trading by foreign institutional investors before quarterly results.

D) Any transaction involving promoters of a listed company.

Answer: B

Explanation:

Insider trading refers to the act of buying or selling securities using non-public, price-sensitive information (NPSI). In India, it is governed by the SEBI (Prohibition of Insider Trading) Regulations, 2015. Employees, directors, or any connected persons who trade based on confidential company data—like upcoming mergers or financial results—are engaging in insider trading.