INSIDER TRADING

What is Insider Trading?

Insider trading is the buying or selling of a publicly traded company's
stock by someone who has non-public, material information about that
stock.

An insider is a person who possesses either access to valuable non-

public information about a corporation or ownership of stock
equaling more than 10% of a firm's equity. This makes a company's
directors and high-level executives insiders.

Insider trading can be either illegal or legal depending on when

the insider makes the trade.
 It is illegal when the material information is still non-public, and this
sort of insider trading comes with stern penalties including both
potential fines and jail time.
*Material information is any information that could substantially impact
an investor's decision to buy or sell the security. Non-public information
is information that is not legally available to the public.

Penalties for Insider Trading

*If someone is caught in the act of insider trading, he can either be sent
to prison, charged a fine, or both. According to the SEC in the US, a
conviction for insider trading may lead to a maximum fine of $5 million
and up to 20 years of imprisonment. According to the SEBI, an insider
trading conviction can result in a penalty of INR 250,000,000 or three
times the profit made out of the deal, whichever is higher.

 Legal insider trading happens in the stock market on a weekly

basis. The question of legality stems from the SEC's attempt to
maintain a fair marketplace. Basically, it is legal when company
insiders engage in trading company stock as long as they report
these trades to the SEC in a timely manner. The Securities
Exchange Act of 1934 was the first step to the legal disclosure of
transactions of company stock.

The question of legality stems from the SEC's attempt to maintain a fair
marketplace. An individual who has access to insider information would
have an unfair edge over other investors, who do not have the same
access, and could potentially make larger, unfair profits than their fellow
investors.

Illegal insider trading includes tipping others when you have any sort
of material nonpublic information. Legal insider trading happens when
directors of the company purchase or sell shares, but they disclose their
transactions legally. The Securities and Exchange Commission has
rules to protect investments from the effects of insider trading.

IMPORTANT!
The best way to stay out of legal trouble is to avoid sharing or using
material nonpublic information, even if you overheard it accidentally.

Insider trading can be either illegal or legal depending on when

the insider makes the trade.

 It is illegal when the material information is still non-public, and this

sort of insider trading comes with penalties including both potential
fines and jail time.

*Material information is any information that could substantially

impact an investor's decision to buy or sell the security. Non-public
information is information that is not legally available to the public.

For Example:
Illegal insider trading includes tipping others when you have any sort
of material nonpublic information.

Scene:
Someone learns about nonpublic material information from a family
member and shares it with a friend. If the friend uses this insider
information to profit in the stock market, then all three of the people
involved could be prosecuted.

READ SLIDE 5

However, it is legal when the company or person follow the legal

procedure. The Legal insider trading happens in the stock market on a
weekly basis. The SEC requires transactions to be submitted
electronically in a timely manner and also must be disclosed on the
company’s website.
 The Securities Exchange Act of 1934 was the first step to the legal
disclosure of transactions of company stock. Reports of transactions by
insiders are filed with the SEC on Forms 3, 4 and 5, and the SEC has
an excellent overview of these forms and the requirements for filing of
same. 
The said forms are as follows:

 Form 3 is used as an initial filing to show a stake in the company.

 Form 4 is used to disclose a transaction of company stock within
two days of the purchase or sale.
 Form 5 is used to declare earlier transactions or those that have
been deferred.

For Example:

 A CEO of a corporation buys 1,000 shares of stock in the

corporation. The trade is reported to the Securities and Exchange
Commission.
 An employee of a corporation exercises his stock options and
buys 500 shares of stock in the company that he works for.

SLIDE 6

READ

Any person found guilty of insider trading and its related prohibitions
may, in addition to administrative sanctions, be held civilly liable in an
amount not exceeding triple the amount of the transaction, plus actual
damages, exemplary damages, and attorney’s fees.

The enddddddd…….

*Law #1: The Securities Act of 1933 

The Securities Act of 1933 passed with two main objectives: “(1) to
ensure more transparency in financial statements so investors can
make informed decisions about investments, and (2) to establish laws
against misrepresentation and fraudulent activities in the securities
markets.” 

This law focused more on the information investors received, less on

third parties.
Law #2: The Securities Exchange Act of 1934

The Securities Exchange Act of 1934 “was created to govern securities

transactions on the secondary market, after issue, ensuring greater
financial transparency and accuracy and less fraud or manipulation.”

Now brokers and other secondary players in the market were liable for
their actions. It also required public companies to disclose financial
transactions. 

Now, Congress has the Securities and Exchange Commission (SEC) to

provide oversight.

Introduction Goodmorning, we're the group 2 and we're going to discuss insider trading
as an ethical issue and problem in business. so, what is insider trading? it is simply buying
or selling of a publicly traded company's stock by someone who has non-public material
information about that stock. So what might be that non-public information? so it is the
unpublished information which includes financial results dividend change in capital
structure and the like. And possible person who could be the insider is generally the
person who is connected with the company, who could have the unpublished information.
they might be the banker of the company, or an official of stock exchange or of clearing
corporation. 3 elements of insider trading the person must be an insider, or a employee of
the company. the insder sells or buys the security of the issuer.. so they are engaging in
securities transaction. the insider is in possesion of material nonpublic information.