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Insider Trading: Fair Dealing In The Capital Market

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Insider trading is a crime on the faith of fair dealing in the capital market. The stringency and scope of violation and penalty differs from country to country. Trading in shares of the company by an insider is violation of law. For example, an insider may come across a corporate fraud and disclose the fraud. An insider can also create information according to his future actions.
Trading by insiders, like directors, officers and employees of the company in the shares of their own company is actually a positive feature, and companies should encourage it as this aligns its interests with those of the insiders.
What actually is prohibited is the trading by an insider in breach of a duty of confidence in the stock of a company on the basis of …show more content…

Besides internet various sources like Companies Act 2013, SEBI guidelines, etc were used.
Organization of the …show more content…

Arthur Levitt, the then Securities Exchange Commission (“SEC”) Chairman in 1998, “Insider trading has utterly no place in any fair-minded law-abiding economy”.
India’s encounter with insider trading was first seen in the 1940s. The Thomas Committee Report in 1948 cited instances of directors, agents, officers, auditors possessing strategic information regarding economic conditions of the company regarding the size of the dividends to be declared, or of the issue of bonus shares or the awaiting conclusion of a favorable contract prior to public disclosure.
Thus, Sections 307 and 308 were incorporated in the Companies Act of 1956. Section 307 provided for maintenance of a register by the companies to record the directors’ shareholdings in the company. Section 308 prescribed to the duty of the directors and persons deemed to be the directors to make disclosure of their shareholdings in the company. Thereafter, by the Companies Amendment Act, 1960 had extended this requirement to the shareholdings of a company’s managers as well. However, these provisions could not curb this practice of insider trading due to which the directors or managing agents making unfair use of inside information could go scot free.

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One example of this unethical way of business, was his way of acquiring “Allegheny Steel Company.” The company was beginning to become quite the competitor, using a new method that allowed the efficient, and effective production of steel. The company’s new method was so successful, they were able to undercut Carnegie’s own prices. However, Carnegie began spreading false rumors of the steel being manufactured by Allegheny Steel Company, implying it was ineffective, spreading alarm to their buyers. He was able to hurt their company and take the the reins.

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Insider trading can be legal or illegal. In Martha Stewart’s case it was illegal. When many people hear the term “insider trading” it would be look at as a crime. Insider training is the trading of a public company stock or other securities by individuals with access to nonpublic, or insider information about the company. On December 27, 2001 highly publicized Martha Stewart sold all of her shares in the biotech company ImClone.

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