INSIDER TRADING

Presented by:
INDRAJIT GHOSH &
SOURISH MUKHERJEE
 WHAT IS
INSIDER
TRADING ?
 Itis basically a trading in a public
company’s stocks or it’s securities, which is
done by a person having a information of
that company which is not yet available to
the public, by any methods either buying or
selling of the stocks or its securities.
 WHO IS AN INSIDER?
 Well,as per Stock Exchange Board of
India (SEBI), the regulatory body of
share markets in india defines insider
as “someone who has access to price-
sensitive information about a
particular company's shares or
securities”. An insider can be anyone
who has been associated with the
company in some way during the six
months preceding the insider trade.
ACTIVITIES LIABLE FOR INSIDER TRADING

 If any insider who -

• Either on his own or on behalf of any other person,
deals in securities of a corporate listed on the stock
exchange on the basis of any unpublished price-
sensitive information; or
• Communicates any unpublished information to any
person, with or without his permission for that
particular information except as required in the
ordinary course of business or under any law; or
• Procures for any other entity to deal in any securities
of a corporate on the basis of unpublished price-
sensitive information,
Shall be liable to a penalty by the SEBI
PENALTIES FOR INSIDER TRADING
 For the said acts, the person held is liable for a
punishment :

 Imprisonment Penalty: The section 24 of the SEBI act says

about the imprisonment up to 10 years or fine up to Rs 25
crores or both for any offence which is in contravention to
the section above mentioned.

 Monetary Penalty: The section 15G of the SEBI act

imposes a penalty of Rs 10 Lacs which may extend upto
Rs 25 Crores or 3 times of the profit made out of the
insider trading , which ever is higher.
 LAWS PROHIBITING
INSIDER TRADING
• SEBI [Insider Trading] Regulation-1992’
• SEBI [Substantial Acquisition of Shares & Takeover]
Regulations 1994.’
• ‘SEBI [Prohibition of Fraudulent & Unfair Trade
Practice relating to securities market] Regulations-
1995.’
• Companies Act, 2013
• SEBI [Prohibition of Insider Trading] Regulation-
2015
HISTORY BEHIND INSIDER TRADING IN INDIA
 Insider trading in India was unhindered in its 130 old stock
market till 1970.
 In 1979 the Sachar committee recommended that there
should be amendments in the companies act 1956, which
prohibited trade by insiders, and insiders dealing of shares
shall be maintained by register of companies.
 In 1986 the Patel Committee was formed to see the dealings
of the activities of Stock Exchanges and it identified the
essential need for the legislation on insider trading in the
country, the absence of which was the primary cause of these
activities.
 In 1989 the Abdul Hussain committee recommended that the
insider trading may be penalized by Civil and Criminal
Proceedings, and SEBI must formulate regulations to stop the
insider trading in India
 NEED FOR PROHIBITION
OF INSIDER TRADING
 As per SEBI, the prohibition of Insider
Trading is required to make Markets:

• Fair and transparent

• To have fair playing field for all players
in the market
• For free flow of information and avoid
information asymmetry
CASE STUDY

- MERGER
CASE
Hindustan Unilever
Limited – Brooke Bond
Lipton India Limited

Merger Case
 TIME LINE OF EVENTS
 The case involves 4 parties which includes the
Hindustan Unilever Ltd, Brooke Bond Lipton Ltd, Unit
Trust of India and Stock Exchange Board of India

 Seeing irregularities, the SEBI ordered a probe into

the deal.

 After the probe was done, in August 1997 the SEBI

charged the Hindustan Unilever of Insider trading by
using Unpublished price sensitive Documents to buy
shares of the Brooke Bond Lipton India Ltd.
 The Hindustan Unilever bought 8 lakhs shares of the
Brooke Bond Lipton Ltd, from the Unit Trust of India at
aprox 350 Rs per share, 30 Rs more than the market
price of 320 Rs per share, which was not so co
incidentally just 2 weeks before the formal announcement
of the Unilever-Brooke bond Merger.

 SEBI Held that Unilever was guilty of insider trading by

using unpublished price sensitive document for trading of
the stocks, and in 1998 the SEBI passed an executive
order which sent ripples among corporates.

 SEBI penalised Unilever for 34 Million Rs and also initiated

criminal proceedings against 5 directors of both Unilever
and Brooke Bond Lipton Ltd.
 The Hindustan Unilever Limited appealed to Union Ministry
of Finance and Corporate Affairs against the order
imposed by SEBI.

 Hindustan Unilever contended that before transaction the

merger was widely speculated by media, after the formal
announcement the press said that the merger was not a
surprise to anyone.

 The Hindustan Unilever mentioned that the share price of

Brooke Bond Lipton Ltd rose a record from 242 Rs to Rs
320 before the transaction which generally indicates that
the News of the Merger was a known information to all in
the Market.
 Hindustan Unilever claimed that the main aim of the
buying of the shares were to enable them to acquire the
majority shares of Brooke Bond Lipton Ltd.

 In July 1998, the Ministry of Finance and Corporate

Affairs had set aside the orders of the SEBI using its
Appelate authority while hearing the appeal filed by
Hindustan Unilever Limited, However the order which
was previously given by the SEBI was right and was
based upon the doctrine of colourable legislation which
says that what can not be done directly can not be done
indirectly.
CONCLUSION
 Insider trading is thus a misuse of privileged
position and breach of trust and hence can disturb
the whole structure of the securities market. In
order to prevent this activity we should take
necessary steps in order to carefully handle the
sensitive information regarding the internal policy
and business matters of the company which is the
main thing towards the enactment of the Insider
trading, by this we can ensure a safe and secured
and also a level playing field for all the corporate
players in the market.
THANK
YOU