The smooth functioning of the securities market, its health growth and development depends to a large extent on the quality and integrity of the market. Such a market can alone inspire the confidence of investors which depends on the assurance that the market can afford investors and that they are placed on an equal footing and will be protected against improper use of inside information. Inequitable and unfair practices like insider trading and other security frauds can affect the integrity, fairness and efficiency of the securities market and confidence of Investors. In India, therefore, The Securities and Exchange Board of India (‘SEBI’) was established to protect the interests of the investors in securities and to promote the development and regulation of the securities market and was empowered to make regulations, consistent with the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’) by notification. Based on these lines, the SEBI introduced the SEBI (Prohibition of Insider Trading) Regulations, 1992 (‘1992 regulations’) which has now been repealed and SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘2015 regulations’) has come into force that aims to counter the shortcomings of the previous regulations and to curb the menace of insider trading i.e. an illegal method used by some vested interests in the area of corporate businesses to fulfil their own monitory expectations or cause loss to others.
The Indian company law provides that a company should prepare an annual account showing the company’s trading results during the relevant year. It also makes it mandatory that the company publishes its assets and liabilities at the end of the period. This has been provided to ensure transparency in the functioning of the company. Also, the company should call at least one meeting of its shareholders each year known as the Annual General Body Meeting (‘AGM’) and is kept with a view to ensure and review the working of the company. The information released in Annual Reports and Annual General Body Meetings plays a valuable role in shaping the minds of existing and prospective shareholders. However, persons in the company itself or otherwise concerned to the company are in possession of certain information before it is actually made public. For example, a Chartered Accountant, auditing the accounts of the company; directors of the company taking decisions etc. The knowledge of this unpublished price sensitive information in hands of persons connected to the companies puts them in an advantageous position over others who lack it. Such information can be used to make gains by buying shares at a cheaper rate anticipating that it might rise or selling them before the prices fall down. Such transaction leads to one of the most serious charges in relation to the securities market i.e., insider trading.
Thus, the present research paper examines the concept of insider trading in India and the critical analysis of the 2015 Regulations formulated by SEBI for insider trading