To run a financial organization effectively it is of utmost importance to keep transparency and openness and disclosure as its primary motto. To achieve these criteria it is much important to maintain the manager stakeholder relationship and embrace the faith of the investors. Investors are attracted by good corporate governance and this increases their reliance on the companies. The Directors of the companies constituting the Board of Directors play a major role in deciding the future of the company. The decisions of the board can affect the stock market reaction towards investors. Hence, the meetings and decisions of the board amount to confidential information. Confidential information is only shared when it is required for the benefit of the company. Hence, it is important to maintain the confidentiality of the information, until disclosed in public. It has been observed over the years that to gain an unfair advantage over others, the people working in the organisation manage to get their hands on confidential information and often engage in unfair trade. This is an unfair practice and morally wrong, which can have bad consequences. Hence, it is essential to curb these practices globally. There are steps taken by different governments to prohibit such practices via regulations globally.
The problem of insider trading emerged with the introduction of the concept of trading of securities in the global market. In India, SEBI regulates the functioning of the capital market. It was established in 1992 under the SEBI act 1992. Insider trading refers to the trading of unpublished price-sensitive information behind the corporations in order to gain unfairly or avoid loss. The Securities Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 defines it as a breach of fiduciary duty by the officers of the company towards the shareholders. Insider trading in India is prohibited by the Companies Act, 2013 and the SEBI Act, 1992. SEBI has formed the SEBI Regulations, 2015 which prescribe the rules of prohibition and restriction of Insider Trading in India.
There has been an evolution of the laws prohibiting the practice of insider trading to a great extent since 1992. The authorities have considered the practice of insider trading as an alarming offence and have amended the statutes with new and stringent provisions from time to time. SEBI has succeeded in punishing the offenders of insider trading to some extent.
The Directors of a company plays a major role in the preservation of the unpublished price sensitive information and hence, to eliminate the offence of insider trading and for the preservation of interest of investors in the market, it is essential to make the people who are considered as ‘Insider’ in the company, accountable for their unlawful dissemination of price-sensitive information. It is not possible to fully control the actions of the Insiders and hence, the people holding the top managerial positions i.e The directors, officers, and other members of the company should set high standards of ethical behaviour in their organisations to ensure that the company’s goodwill is not damaged. This behaviour cannot be imposed compulsorily on anyone. The Indian authorities can also focus on adapting such techniques or technologies that can help in the faster redressal of pending cases.