Overview:
Any country runs smoothly when there is a trust factor among the residents and the institutions of the country. The same happens with the markets in the country, which further affects the economy of the country. Insider trading is one of the major factors which affect trust in the markets, making the economy vulnerable. Insider trading is the trading of securities on the basis of any non-public information.[1] Insider trading is both immoral and illegal as it provides an unfair advantage to the insider at the cost of other investors. In India, insider trading is looked upon by the Securities and Exchange Board of India (SEBI), which has the power to make the rules and regulations necessary for avoiding any kind of unfair trade practices in India. For the prohibition of insider trading in India, the SEBI has set out the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, which focus on maintaining the trust of investors in the market and ensuring that the market is not abused by the key personnel in the companies and their relatives. Though there exists a set of strict and compatible regulations for the prohibition of insider trading, there is still a need for improvement of the regulations, as the evolving and modernising world leads to different challenges and at the same time, enables us to provide an extra layer of security with the application of the technology and new ideas. This articleattempts to critically analyse the laws ensuring the prohibition of insider trading in India with a specific focus on the SEBI Act, 1992, and the SEBI (Prohibition of Insider Trading) Regulation, 2015.Also, the article will focus on the measures that may be taken in order to strengthen the laws in India.
Theories of Insider Trading:
There have been many theories of insider trading propounded, which help in understanding the concept of insider trading. Some of the theories are classical theory, tipper-tippee theory and misappropriation theory. The classical theory states that an insider has a fiduciary duty not to abuse his position by making use of the knowledge acquired due to the position held by him, and the insider violates the duty by trading in securities of the company based on the confidential information. Another theory, i.e., the tipper-tippee theory,states that a tipper breaches his fiduciary duty by providing any confidential information to the tippee, and the misappropriation theory involves a person who is not considered an insider and has legally acquired confidential information which he uses or discloses illegally.[2]
[1]Aayush Gupta, “INSIDER TRADING IN INDIA: COMPARATIVE ANALYSIS” (2023) 3 Indian Journal of Legal Review (IJLR) 156 https://ijlr.iledu.in
[2]IJLLR Journal, “Critical Analysis of Laws Related to Insider Trading” (IJLLR Journal, May 24, 2024) https://www.ijllr.com/post/critical-analysis-of-laws-related-to-insider-trading