INSIDER TRADING Regulations & Practices

Introduction
Insider trading essentially denotes dealing in a company s securities on the basis of confidential information relating to the company which is not published or not known to the public. Illegal insider trading refers to buying/ selling a security, in breach of fiduciary duty or other relationship of trust and confidence, while in possession of material, non public information about the security. It is legal when insider corporate officers, directors , and employees buy/sell stock in their own companies or trade in their own securities, while reporting their trades to SEBI.

Who is an Insider?
As per Regulation 2 (e),

An Insider is a person connected or deemed to be connected and who is reasonably expected to have access to any unpublished price sensitive information in respect of securities [i.e. shares, debentures etc.] of a company

Thus Insiders are

Corporate officers, directors , and employees who traded the corporations securities after learning of significant , confidential corporate developments. Friends , business associates, family members , and other types of such officers , directors , and employees, who traded the securities after receiving such information. Employees of law, banking , brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded. Government employees who learned of such information because of their employment by the government .

What is price sensitive information???

Price sensitive information as defined in Regulation 2(ha) of the regulation is any information which relates directly or indirectly with the company & which if published is likely to materially affect the prices of the securitys of the company.

Information which is deemed to be price sensitive could be

Periodical financial results Intended declaration of the dividends(both Interim & Final)

Issue of securities or buy back of securities

Any major expansion plans or execution of new projects. Amalgamation & mergers or takeovers. Disposal of the whole or substantial part of the undertaking Any significant changes in policies , plans or operations of the company.

Disclosures for prohibition of Insider Trading

Initial Disclosure Any person holding more than 5% shares or voting right in any listed company shall disclose to the company the number of shares or voting rights held by him It also requires a director to inform the company about the number of shares or voting rights held by him within 4 days of his appointment. Continuous Disclosure It also requires such shareholders and directors to make continuous declaration of any change in their share holding or voting rights to the company. The company in return is required to disclose such information received to all stock exchanges where the company is listed.

Model Code of Conduct

As per regulation 12 A compliance officer is required to be appointed by the company. There should be pre-clearance of trade by the officer of designated employees. Designated employees include :
1. Employees from top 3 layers of Mgmt. 2. All Employees in finance department irrespective of any designation & grade. 3. Employee designated by BOD from time to time to whom the trading restriction shall be a applicable.

Such directors, officers and employees shall be eligible to deal in securities only during a trading period known as Trading windows.

Investigation of Insider Trading

As per regulation 4(a)

Sebi may appoint officers to investigate and inspect the books and records of insider(s) for the purpose of inspection. SEBI can investigate any complaints received from investors, intermediaries or any other person(s) on any matter having a bearing on the allegations of insider trading. SEBI can appoint an external auditor for the enquiry who would possess the same power as the SEBI. Before undertaking any investigation under regulation (5), SEBI shall give a reasonable notice to insider for that purpose. Where SEBI is satisfied that in the interest of investors or in public interest no such notice should be given, it may by an order in writing direct that the investigation be taken up without such notice.