Insights of Insider Trading

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<ul><li> 1. Insights of INSIDER TRADING Pavan Kumar Vijay</li></ul><p> 2. What Is INSIDER TRADING? 3. INSIDER TRADING It isdealing inthe securitiesby aInsider ,who has the knowledge ofmaterial inside information which isnot known to the general public 4. How BADIt Is ??? 5. How BAD It Is ??? </p> <ul><li>Used tomake profit at the expense of other</li></ul><ul><li>investors </li></ul><ul><li>Leads toloss of confidenceof investor in stock</li></ul><ul><li>market</li></ul><ul><li>The processcorrupts the Level Playing Field </li></ul><ul><li>It is easier to identify the beneficiaries ofinsider</li></ul><ul><li>dealing. But theextent of lossesoccurred is</li></ul><ul><li>impossible to calculate . </li></ul><p> 6. SEBI (Insider Trading) Regulations, 1992Governing Regulations SEBI (Insider Trading) (Amendment) Regulations, 2002SEBI ( Prohibition of Insider Trading) (Second Amendment) Regulations, 200219.11.1992 20.02.2002 29 .11.2002 7. Who Is INSIDER ??? 8. Reg 2 (e) ANY PERSON WAS ISCONNECTEDWITH THE COMPANY WHO OR OR DEEMED TO HAVE BEEN CONNECTED AND WHO IS REASONABLY EXPECTED TO HAVE ACCESSHAS RECEIVEDHAS HAD ACCESSOR OR TO UNPUBLISHED PRICE SENSITIVE INFORMATION INSIDER 9. Connected Person?? Who Is 10. Reg 2 (c) ANY PERSON Deemed to be a director U/s 307(10) of Co. Act Is a director U/s 2(13) of Co Act WHO OR OR HOLDS A POSITION INVOLVING AND WHO MAY REASONABLY EXPECTED TO HAVEACCESS TO UPSI OR Employee OfficerBusiness Relationship Professional RelationshipOR Whether Temporary Permanent OR Connected Person 11. Connected Person Explanation : WHO IS CONNECTED PERSON ANY PERSON SHALL MEAN THE WORD CONNECTED PERSON SIX MONTHS PRIOR TO AN ACT OF 6 6 6 6 INSIDER TRADING 12. Person Deemed to beConnected ?Who Is 13. Company under Same Management / Group / SubsidiaryReg 2 (h) Person Deemed to be Connected All Intermediaries, Their Employees &amp; Directors Investment/ Trustee / Asset Management Company, theirEmployees &amp; Directors Officials of Stock Exchange / Clearing House / CorporationBoard of Trustee Members &amp; Directors of Mutual Fund Public Financial Institution, Its Employees &amp; Directors Relative of any of the aforementioned Persons 14. Bankers of the company Reg 2 (h) Person Deemed to be Connected Contd. Relatives of the Connected Persons Any Concern / Firm / trust / HUF/ Company / AOP In whichDirectors or Deemed Directors / Relatives of Connected / Deemed Connected Persons or company bankerHave More than10%of the holding or Interest 15. Price SensitiveInformation 16. Reg 2 (ha) ANY INFORMATION OR AND TO A COMPANY LIKELY TOMATERIALLY AFFECTTHE PRICE OFSECURITIES OF THE COMPANY INDIRECTLY DIRECTLYPrice Sensitive Information WHICH RELATES WHICH IF PUBLISHED 17. Deemed Price Sensitive Information Reg 2 (ha) </p> <ul><li>PeriodicalFinancial Resultsof the company; </li></ul><ul><li>Intended declaration ofdividends;</li></ul><ul><li>Issueof securities orbuy-backof securities; </li></ul><ul><li>Expansion Plans/New projects ; </li></ul><ul><li>Amalgamation, mergers or takeovers; </li></ul><ul><li>Disposalof undertaking;</li></ul><ul><li>Changes in policiesof the company </li></ul><p> 18. Price Sensitive InformationListing</p> <ul><li>Change in the general character or nature of </li></ul><ul><li>business </li></ul><ul><li>Disruption of operations due to natural calamity. </li></ul><ul><li>Commencement of Commercial Production/ </li></ul><ul><li>Commercial Operations </li></ul><ul><li>Litigations/ dispute with a material Impact. </li></ul><ul><li>Revisions in Ratings </li></ul><p>As per Clause 36 Listing Agreement Contd. 19. </p> <ul><li>Any other information having bearing on the operation/ performance of the Company as well as price sensitive information which includes but not restricted to; </li></ul><ul><li><ul><li>Change in market lot / sub-division ; </li></ul></li></ul><ul><li><ul><li>Voluntary delisting by the company ;</li></ul></li></ul><ul><li><ul><li>Forfeiture of shares; </li></ul></li></ul><ul><li><ul><li>Alteration interms of any securities ;</li></ul></li></ul><ul><li><ul><li>Information regarding securities issued abroad ; </li></ul></li></ul><ul><li><ul><li>Cancellation of dividend/ rights/ bonus etc. </li></ul></li></ul><p>Price Sensitive InformationListingAs per Clause 36 Listing Agreement Contd. 20. Un - Published 21. Un - Published Reg 2 (k)Information,which isnot published by the company or its agentsandisnot specificin nature.Explanation:Speculative reports in print or electronic mediashall notbe considered as published information 22. Dealing in Securities 23. Dealing in Securities Reg 2 (d)"Dealing in Securities"means an act ofsubscribing buying, selling or agreeing subscribe to buy, sellor deal in any securities by any personeitheras principal or agent; 24. Prohibition onDealing, Communicating or Counseling 25. Reg 3ProhibitionOn Insider NO INSIDER On Others behalfEither on his own behalf DEAL IN SECURITIES OF THE COMPANY SHALL OR WHEN IN POSSESSION OF ANY UPSI OR COMMUNICATE / COUNSEL / PROCUREDirectly Indirectly OR ANY UPSI TO ANY PERSON 26. Reg 3Exemption to Prohibition For Insider For any communicationwhich is required in theordinary course of business or profession or employment or under any law. 27. Reg 3AProhibitionOn Company NO COMPANY Deal in Securities ofSHALL WHEN IN POSSESSION OF ANY Other company Associate of that other companyOR UNPUBLISHED PRICE SENSITIVE INFORMATION 28. Reg 3BExemption to Prohibition</p> <ul><li>The decision oftransaction or agreement wasnottaken by officer or employee of the company who is in possession of UPSI; AND</li></ul><ul><li>Adequate Procedures in placeto demarcate the persons having UPSI &amp; persons dealing in securities; AND</li></ul><ul><li>Properarrangement in place to blockthe dissemination of UPSI; AND </li></ul><ul><li>The information wasnot so communicatedand no such advice was so given; OR .</li></ul><ul><li>The acquisition was inline with SEBI SAST Regulations </li></ul><p>Exemption to Prohibition For Company 29. Violationsof Provisions Relating toInsider Trading 30. Reg 4 Violation Any insider,whodealsin securitiesin contraventionof the provisions ofRegulation 3 or 3Ashall beguiltyof Insider trading. 31. Power of SEBI To Make Inquiries &amp;Inspections 32. Reg 4A Power to make Inquiries &amp; inspection If the Boardsuspects that anyperson has violated anyprovision of these regulations,itmaymake inquiriesOR appoint persons to inspectbooks &amp; records of such persons OR anyStock Exchange / Mutual Fund / Intermediaries/ Any other person as deemed fit,toform a prima facie opinion as to whether there isany violation of these regulations. 33. Right of SEBIToInvestigate 34. Reg 5 Right to Investigate The Boardmayappoint investigating authoritytoinvestigate into thecomplaints received from investors ,intermediaries or any other personon any matter having a bearing on theallegations of insider trading ;ANDTo investigatesuo-moto upon its own knowledge orinformation in its possessiontoprotect the interest of investorsin securitiesagainst breach of these regulations. 35. Procedurefor Investigation 36. On Complaints / Suo-motoOn Conclusion Report to Board Board willIssue directions InvestigationStarted Appointment ofInvtg. Auth. Notice Issued To provideall assistance Shall Replywithin 21 days Findings tosuspected person Procedure for Investigation Reg 6 - 9 37. DirectionsBySEBI 38. Reg 11 Directions by Board </p> <ul><li>INDEPENDENT </li></ul><ul><li>of right toInitiate Criminal proceedings </li></ul><ul><li>ORany action under</li></ul><ul><li>Chapter VIA of the Act (Penalties &amp; Adjudication) ,</li></ul><ul><li>May Direct </li></ul><ul><li>Not to deal in securities</li></ul><ul><li>Prohibition on Disposal</li></ul><ul><li>Restraining to Communicate or Counsel </li></ul><ul><li>Declare transaction as null &amp; void </li></ul><ul><li>To deliver securities back to the seller </li></ul><ul><li>Or market price equivalent be paid to the seller </li></ul><ul><li>To transfer the proceeds to the </li></ul><ul><li>Investor Protection Fund of Stock Exchange </li></ul><p> 39. DisclosuresTo beMade 40. Reg 13(1) Disclosures To beMade PARTICULARS TO BE SUBMITTED To PERIODInitialdisclosure by person who holdsmore than 5%shares/ voting rights in any listed company Company within 4 working daysof receipt of information of allotment or the acquisition of shares/voting right To IntimateThe number of shares held by such persons 41. Reg 13(2) Disclosures To beMade PARTICULARS TO BE SUBMITTED To PERIODInitialdisclosure by person who is eitherdirector or officeroflisted company Company within 4 working daysof becoming the director or officer of company To IntimateThe number of shares held by such persons 42. Reg 13(3 &amp; 5) Disclosures To beMade PARTICULARS TO BE SUBMITTED To PERIODContinualdisclosure by person who holdsmore than 5%shares/ voting rights in any listed company Company within 4 working daysof receipt of information of allotment or the acquisition of shares/voting right To IntimateThe number of shares held &amp;any Change exceeding 2% 43. Reg 13(4 &amp; 5) Disclosures To beMade PARTICULARS TO BE SUBMITTED To PERIODContinualdisclosure by person who is eitherdirector or officer oflisted company Company within 4 working daysof receipt of information of allotment or the acquisition of shares/voting right To IntimateThe number of shares held &amp;any Change exceeding Rs. 5 Lakh OR 25000 Shares OR 1%whichever is Lower 44. ModalCodeof Conduct 45. Code of Conduct To be Abide By Reg 12 </p> <ul><li>All Listed Companies</li></ul><ul><li>Organizations Associated with Securities Markets including: </li></ul><ul><li>All intermediaries</li></ul><ul><li>AMC and trustees of mutual funds;</li></ul><ul><li>The Self Regulatory Organizations; </li></ul><ul><li>The Stock Exchanges / Clearing House /Corporations; </li></ul><ul><li>The Public Financial Institutions</li></ul><ul><li>The Professional Firms</li></ul><ul><li><ul><li>Such asAuditors, Accountancy Firms, Law Firms ,</li></ul></li></ul><ul><li><ul><li>Analysts, Consultants, etc., </li></ul></li></ul><ul><li>Assisting or Advising Listed Companies </li></ul><p> 46. Model Code of Conduct Schedules SCHEDULE IMODEL CODE OF CONDUCT FOR PREVENTION OF INSIDER TRADING PART A -FOR LISTED COMPANIES PART B FOR OTHER ENTITIES SCHEDULE IICODE OFCORPORATE DISCLOSURE PRACTICES FORPREVENTION OF INSIDER TRADING 47. Important TermsIn Code of Conduct 48. </p> <ul><li>PSIshould be disclosed only to those within the companywho need the informationto discharge their duty .</li></ul><ul><li>Limited accessto confidential information</li></ul><ul><li>Files containingconfidential informationshall be kept</li></ul><ul><li>secure. </li></ul><ul><li>Computer filesmust have adequatesecurityof login and pass word etc. </li></ul><p>Model Code of Conduct IMPORTANT TERMS NEED TO KNOW 49. Model Code of Conduct </p> <ul><li>AllD/O/Eof the Co who intend to deal in the securities</li></ul><ul><li>beyond a limitshould pre-clear the transactions. </li></ul><ul><li>Anapplicationto the Compliance officer indicating</li></ul><ul><li>Theestimated numberof securities that the D/O/E </li></ul><ul><li>intends to deal in, </li></ul><ul><li>The details as to thedepositorywith which he has a </li></ul><ul><li>security account, </li></ul><ul><li>The details of securities in such depository mode. </li></ul><ul><li>Otherdetails as may be required by any rule made by </li></ul><ul><li>the company in this behalf.</li></ul><p>IMPORTANT TERMS PRE CLEARANCE OF TRADES 50. </p> <ul><li>Company shall specify atrading period , to be called</li></ul><ul><li>"Trading Window", for trading in the companys securities. </li></ul><ul><li>The trading windowshall be closedduring the time the</li></ul><ul><li>Price Sensitive information is un-published .</li></ul><ul><li>When the trading window is closed, theD/ E /O shall not </li></ul><ul><li>tradein the company's securities in such period.</li></ul><ul><li>The trading window shall beopened 24 hours afterthe </li></ul><ul><li>Price Sensitive Information is made public.</li></ul><p>Model Code of Conduct IMPORTANT TERMS TRADING WINDOW 51. </p> <ul><li>Torestrict trading in certain securitiesand designate such list asrestricted / grey list.</li></ul><ul><li>Client Companiesfor which any assignmentorappraisal report or credit ratingassignments are going on.</li></ul><ul><li>Any security which ispurchased or soldby the organisation /firm on behalf of its clients/schemes of mutual funds, etc. shall be put on the restricted / grey list.</li></ul><ul><li>As the restricted list itself is a highly confidential information, Itshall be maintained by CO. </li></ul><p>Model Code of Conduct IMPORTANT TERMS RESTRICTED /GREY LIST 52. Model Code of Conduct </p> <ul><li>"Chinese Wall"policydemarcates inside areas from "public areas". </li></ul><ul><li>Those areashavingaccess to confidential information , consideredinside areasand areas which dealwithsales / marketing / investmentconsidered"public areas". </li></ul><ul><li>The employees in the inside areashall not communicateany PSIto anyone in public area.</li></ul><ul><li>Inexceptionalcircumstances employees from the public areas may bebrought "over the wall" and given confidential information on the basis of"need to know"criteria, under intimation to theCO</li></ul><p>IMPORTANT TERMS CHINESE WALL 53. </p> <ul><li>Compliance OfficerSenior Level Employee who shall report to the MD / CEO. </li></ul><ul><li>The CO shall beresponsible for </li></ul><ul><li>-setting forthpolicies, procedures </li></ul><ul><li>-monitoringadherence to the rules for the preservation of PSI, </li></ul><ul><li>-pre-clearingof designated employees and their dependents trades</li></ul><ul><li>-monitoring of trades and theimplementationof the code of conduct </li></ul><ul><li>under the overallsupervision of the Boardof the listed company. </li></ul><ul><li>The CO shall maintain arecord of the designated employeesand any </li></ul><ul><li>changes made in the list of designated employees. </li></ul><ul><li>To Provideclarificationsregarding the SEBI (Prohibition of Insider Trading) Regulations, 1992&amp; the company's code of conduct to the Companys employees. . </li></ul><p>Model Code of Conduct IMPORTANT TERMS COMPLIANCE OFFICER (CO) 54. </p> <ul><li>Code providesPenalty and Appropriate action by the</li></ul><ul><li>company for violations of code. </li></ul><ul><li>Disciplinary action by the company,includewage</li></ul><ul><li>freeze ,suspension,ineligiblefor future participation in</li></ul><ul><li>ESOP etc </li></ul><ul><li>The action by the companyshall not preclude SEBI </li></ul><ul><li>fromtaking anyaction incase of violation of SEBI</li></ul><ul><li>(Prohibition of Insider Trading),Regulations, 1992. </li></ul><p>Model Code of Conduct IMPORTANT TERMS PENALTY FOR CONTRAVENTION OF CODE OF CONDUCT 55. Action By SEBI Against Violations 56. </p> <ul><li>Take actions toProhibit InsiderTrading U/s 11. </li></ul><ul><li>Issue directionsin Interest of Investors &amp; Securities Market U/s 11B </li></ul><ul><li>Impose Penalty ( 25 Crore) / Imprisonment (10 Years)U/s - 24 </li></ul><p>Reg 14 GENERAL ACTIONAGAINST VIOLATIONS 57. Sec 15 G of SEBI SPECIFIC ACTIONAGAINST VIOLATIONS </p> <ul><li>APPLICABILITY : </li></ul><ul><li>Any Insider Who</li></ul><ul><li><ul><li>Deals in Securities based on any UPSI. </li></ul></li></ul><ul><li><ul><li>Communicates any UPSI to any person, with or without his request </li></ul></li></ul><ul><li><ul><li>Counsels / procures to deal in Securities Based on UPSI. </li></ul></li></ul><ul><li>PENALTY : </li></ul><ul><li><ul><li><ul><li>Rs. 25 CroreOR </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>3 timesthe amount of profit made</li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Whichever isHIGHER </li></ul></li></ul></li></ul><p> 58. InterestingJudgements on Insider Trading 59. MATTER OF DEBATE WHETHER ANACTION UPONANY PRICE SENSITIVEINFORMATION WHICH TURN OUT TO BEINCORRECT FALLS UNDER INSIDER TRADING SAMEER ARORA VS. SEBI HELD INFORMATION WHICH FINALLY TURNS OUT TO BE FALSE OR AT LEAST UNCERTAIN CANNOTEVEN BE LABELED AS INFORMATION. 60. MATTER OF DEBATE WHEN AN PRICE SENSITIVE INFORMATION WILL BETREATED AS MADE PUBLICDSQ HOLDINGS VS. SEBI HELD THE DAY ON WHICH THEINFORMATIONIS SENTTOTHESTOCK EXCHANGEAS PER THE LISTING AGREEMENT. 61. 2. DSQ HOLDINGS VS SECURITIES &amp; EXCHANGE BOARD OF INDIA. BRIEF ISSUES &amp; DECISION The appellant was charged for indulging in the insider trading in the sharesof the Company via DSQ Biotech Ltd.(DSQB). The TransactionRelates to the period from 1/08/1994 to 30/09/1994. The respondent has held that appellant is an insider and it had purchased shares on the basis Of UPPSI relating to RIGHT ISSUE. The appellant is found guilty of violating regulation 3(I) of the Insider Regulations. The impugned order states that the information on the right issueBecomes public only on 309/94 when the AGM was held. The notice ofAGM was dispatched to the shareholding on 25/08/94.The Appellant states that the right issue was first discussed in theBoard Meeting of the Co. held on 30/7/94. The Company send theInformation to the Stock exchange as per the Listing Agreement on theVery same day. The concerned public was aware of the companysProposal the very same day Thus the ingredients of insider tradi...</p>