<b>What is Insider Trading? </b>
Insider trading is defined as malpractice wherein trade of a company's securities is undertaken by people who by virtue of their work have access to the otherwise non-public information which can be crucial for making investment decisions. <a href="https://economictimes.indiatimes.com/definition/insider-trading">(Source)</a>
In simple terms, Insider Trading is when Key Executives have important information about the strategy of the company which they can use for trading in the Company’s Stocks. It is an unfair practice that is highly discouraged and considered illegal by the SEBI (Security & Exchange Board of India).
<b>What is the obligation of Companies for Insider Trading according to SEBI? </b>
Every listed company has the following obligations under the SEBI (Prohibition of Insider Trading) Regulations, 1992:
• To appoint a senior-level employee generally the Company Secretary, as the Compliance Officers;
• To set up an appropriate mechanism and to frame and enforce a code of conduct for internal procedures,
• To abide by the Code of Corporate Disclosure Practices as specified in Schedule ii to the SEBI (Prohibition of Insider Trading)Regulations, 1992
• To initiate the information received under the initial and continual disclosures to the Stock Exchange within 5 days of their receipts;
• To specify the close period;
• To identify the Price Sensitive Information
• To ensure adequate data security of confidential information stored on the computer;
• To prescribe the procedure for the pre-clearance of trade and entrusted the Compliance Officers with the responsibility of strict adherence of the same. <a href="https://www.latestlaws.com/wp-content/uploads/2018/09/Insider-Trading-Law-in-India-By-Baishali-Das.pdf">(Source)</a>
If not complied with the SEBI (Prohibition of Insider Trading) Regulations, an Individual or Company can be punished through fines or imprisonment.
<b>Violation of the Insider Trading Regulations by a Biocon employee </b>
A designated employee of Biocon, Girija Kelath was charged by SEBI for violating the prohibition of Insider Trading regulations by trading in the shares of Biocon during the trading window closure period, which is strictly prohibited.
SEBI carried out an investigation to make sure if there was a PIT violation by Girija Kelath, with respect to her transactions from 31st August 2018 to 1st October 2018.
Biocon had closed the trading window from 1st October to 27th October 2018 and intimated all designated persons regarding this planned closure by mail on 28th September 2018.
SEBI in their Investigation found out Girija Kelath had traded on 1st October 2018 which was during the trading window closure period. SEBI noted that 15,000 shares worth Rs. 1,00,50,000 Rs were sold on the market on October 01, 2018.
Considering the offense, SEBI imposed a fine of Rs. 5 lakhs on the Biocon employee for violating the regulations.
<b>Delayed disclosure violation </b>
In another such case, SEBI imposed a fine of 2 lakh rupees for making delayed disclosure with respect to change in its shareholding in Sun & Shine Worldwide Ltd. Saral Mining shareholding in Sun & Shine Worldwide Ltd changed by more than 2% in May 2014 however the company failed to make requisite disclosures to the company and the exchanges within the prescribed time frame, thereby violating market norms.
With strict regulations imposed by the SEBI, companies are now required to adopt stringent measures to ensure compliance with the regulations and reporting on a timely basis for any disclosures to the SEBI. Non-compliance in any aspect may invite penalties in the form of fines or imprisonment.
Riskpro provides services to review compliance with the PIT regulations and also to assist companies to implement compliance. For more details, please email at info@riskpro.in