Insider trading in India – regulatory enforcement

Author:Anil Kumar Manchikatla, Rajesh H. Acharya
Position:School of Management, National Institute of Technology Karnataka, Mangalore, India
Pages:48-55
SUMMARY

Purpose The purpose of this paper is to study the effectiveness of insider trading enforcement actions in India and international dimensions. Design/methodology/approach The research is based on the insider trading regulations and amendments made during the period 1992-2015. Findings The notable observation of the study is the dearth of insider trading conviction and the ... (see full summary)

 
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Insider trading in India –
regulatory enforcement
Anil Kumar Manchikatla and Rajesh H. Acharya
School of Management, National Institute of Technology Karnataka,
Mangalore, India
Abstract
Purpose The purpose of this paper is to study the effectiveness of insider trading enforcement actions in
India and international dimensions.
Design/methodology/approach The research is based on the insider trading regulations and
amendments made during the period 1992-2015.
Findings The notable observation of the study is the dearth of insider trading conviction and the paucity
of prosecution for insider trading offences in India. It is difcult to resist the conclusion that surveillance and
enforcement matter more than the drafting of the relevant statutes and regulations in emerging markets.
Whereas, developed countries have a better record of prosecution than emerging markets.
Research limitations/implications Future research may explore the factors that hinder effective
regulation and recommend new methods to increase the impact of Securities and Exchange Board of India
insider trading regulation.
Originality/value The current paper presents guidance for the foreign institutional investors, regulators
and market participants on insider trading regulation and prosecution in India.
Keywords India, Emerging markets, Insider trading, Legal trading, Regulatory ambiguity,
Trade on disclosures
Paper type Research paper
1. Introduction
The stock exchanges of a nation are the key segment of its capital market. A healthy capital
market can be created if the stock exchanges are well regulated. In the current economic
environment around the world, an active enforcement of criminal laws and regulations has
increased its focus on punishing and preventing insider trading and market abuse. The
insider trading prosecution has to expose the evidence of insider trading by using forceful
devices such as wiretaps. The US Court juries have frequently been sentencing those who
have chosen to go to tentative and dishing out severe nes to the guilty defendants. Insider
trading means trading by any individual in the securities of a company by having
price-sensitive information of the company before it is available to the general public with an
intention of making abnormal prots or avoiding losses. “Insider means any individual who
has access to unpublished price sensitive information with respect to securities of a
company”, conferring to Securities and Exchange Board of India SEBI (Prohibition of Insider
Trading) Regulations (1992). In a similar vein, Section 195 of The Companies Act (2013)
states that insider trading is an act of buying, selling, subscribing or agreeing to subscribe in
the securities of companies directly or indirectly by the key management personnel or the
director of the company and sensibly anticipated to have access to Unpublished Price
Sensitive Information[1] (UPSI) with reference to the company as well as its securities is
deemed to be insider trading.
The term insider trading is subject to many denitions and connotations, and it
encompasses both legal and prohibited activity. When a corporate insider trades by adhering
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
JFC
24,1
48
Journalof Financial Crime
Vol.24 No. 1, 2017
pp.48-55
©Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-12-2015-0075

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