What is Insider Trading? | Is It Legal in India or Not? - First Demat

Insider Trading

Recently the news has come out that many Indians have been accused in the case of insider
trading in America.
Now many of our readers may not be aware of the term 'insider trading' and may be wondering
how a trading practice can be illegal after all, and how many types of trading are there that are
not legal in our country.
Don't worry, it is our responsibility to make our readers aware of such things and improve their
knowledge and understanding of the stock market.
Just like any other sector the world of the share market is also full of many unfair and illegal
practices ever since the stock market came into existence, many such scams and fraud cases
have come to the fore, which have affected the people a lot. And from time to time we have
come to see such cases and we will probably see them even further, but the best feature of the
stock market is that the market recovers itself from all these things after a short time and also
people learn a lot from all these frauds and scams.
Insider trading is also a type of illegal trading and this is not the first time that an event like
insider trading has been heard in the US or any other country.
In India too, in the last several decades, many such insider trading cases have come to the
fore.
Actually, this trading process is not for the common people, only high-end businessmen,
politicians and stock market tycoons indulge in all these things because it requires confidential
information about the company.
If you are thinking about why only upper-class people are involved in these things, then before
knowing this, you should understand what insider trading is.
So, Let's move toward the question

What is Insider trading?
In simple words, insider trading is a process of privately transferring shares between an
individual or any authority and a public company before it is listed publicly on the share
market
Let us understand this with the help of an example, suppose you want to buy some
vegetables for your kitchen and when you go to the market you find that the vegetable
which is less in stock and more in demand also costs more.
And similarly, if you want to sell something, then you have to go to the market related to
that thing where you will find your buyers, here in these cases market plays a very
important role in this buying and selling process because it is the only place where
people come to buy and sell their goods.

And just on the same principle, our stock market works, In our country India, BSE
(Bombay Stock Exchange) and NSE (National Stock Exchange) are two major
exchanges they are like markets where publicly listed companies come to sell their
shares under the guidance of SEBI and individuals buy them with the help of any
broker but there is a catch, many times it happens that some companies sell their some
shares privately to any individual or any authority even before they are listed publicly, for
example, suppose there is a company 'XYZ' which is going to issue 20% of its share on
Monday
And here I came to know about it from somewhere and I contacted the leading authority
of the company and asked them to transfer 10% of the shares to me privately before the
day of public listing so I can sell those shares at a public price after they are published
and make good profit from it and such type of trading practice is known as Insider
trading which is totally illegal in India or any country.

Things to know about Insider Trading.
•Generally Insider Trading is termed an illegal trading practice but there are also some
ways where it is not categorized as illegal, like when directors of the company buy or
sell shares when directors disclose their transactions legally.
•If you have any confidential information about the company and you tipped others, it is
also a part of Insider trading and it is wrong and illegal.
• The security and exchange board of India(SEBI)has restricted the firms from buying
their own shares from the secondary market to prevent such types of illegal practices
and to encourage fair transactions in the market for the welfare of common investors,
• The SEBI (Insider Trading) Regulation, 1992, established under Article 11 of the SEBI
Act, 1992, aims to reduce and prevent the threat of insider trading in securities.
Let's move toward the summary part...
Summary:
Here in this post we have discussed about Insider trading and learnt that the process of
transferring shares, bonds, funds or any other type of securities between a public listed
company and an individual is known as insider trading, the word insider refers to some
inside confidential information or any insider who leakes any confidential information to
someone who uses that information to earn profit.
Insider trading is a completely illegal practice in India as well as in any other country, the
security and exchange board of India has strict policies against such types of trading
practices.

Not all types of insider trading practices are categorized as illegal there are also some
points where insider trading can be done like when directors of the company buy or sell
shares or when directors disclose their transactions legally.

That's it, Thanks for reading our post. We hope this post of ours will prove
beneficial to you.