ET in the classroom: Know all about insider trading

Insider trading is a serious crime and one that is dealt with stringently. Here is what one should know about this malpractice:

1. What is insider trading? Insider trading is the practice of using exclusive, unpublished, price-sensitive information to gain an advantage at the markets. This is unfair for other shareholders as they have to make an investment decisions without access to information that these ‘insiders’ have.

2. Who are these ‘insiders’? ‘Insiders’ in this context could refer to anyone who has access to confidential information. These ‘insiders’ could include the member of the Board or management, an employee, internal auditors, advisors, and could include consultants as well

3. What does not qualify as insider trading? Any trading based on publicly available information is not treated as insider trading. Publicly available information means it is freely available and accessible to all investors. This could be news published on the company’s website, or provided to the exchanges or even published in newspapers.

4. What measures do companies take to avoid it? All companies have compliance officers who are vested with the responsibility of ensuring that no instances of insider trading occur. In most cases, companies usually bar insiders like board members, finance department employees, etc from dealing in shares before results are declared.
5.What mechanisms do investors have to lodge a complaint?
If anyone notices incidence of insider trading, they can write to market regulator Sebi with their complaint.

6.What is the punishment for insider trading? Sebi’s insider trading laws say that if someone is proved with being involved in insider trading, they can be debarred from the markets, be imposed with monetary penalty or even be imprisoned.