Sunday, November 17, 2013

New insider trading norms to benefit minority shareholders in India

insider trading
By definition "Insider trading is when company insiders such as promoters, senior management and directors trade in the stock of their own company on the basis of information which is not available to the public shareholders". Under current insider trading norms promoters and other company insiders have to make a disclosure with the stock exchange within five days of the trades. 

Security Exchange Noard of India or Sebi’s committee feels the post-trade disclosure puts minority shareholders at disadvantage and hence under proposed new norms promoters and top executives, intending to buy or sell shares of their companies, will have to inform the market well in advance before such transactions. Once Sebi makes it a rule, promoters and insiders may have to specify a window, maybe up to three months in prior, during which they would buy or sell their own shares.

Sebi is in the process of complete overhaul of 20 year old insider trading norms which is very good for retail and individual players who often fall pray to insider trading without getting compensated. Insider trading rules are very strict in U.S and other western countries where beside monetary penalties even jail terms are given to the guilty. In the US last year, Rajat Gupta, the former Goldman Sachs Group director, and billionaire hedge-fund manager Raj Rajaratnam were jailed in one of the biggest crackdown on insider trading by the American government. Gupta was found guilty of passing confidential tips to Rajaratnam.

So with the proposed indider trading rules:

Insiders may have to specify a window for dealing in shares.
Market will know in advance about promoter's intension to buy or sell.
Move aimed at transparency, curb misuse of insider information.
Proposal mulled by insider trading committee set up by Sebi.
Committee also looking at ways to optimize new powers to tackle insider trading.
19-member committee to submit its report next month

1 comment:

  1. This sounds like music to the ears of minority investors. Lets hope it gets implemented within a year.


15 Stock Investment Tips from Rakesh Jhunjhunwala

1. Always go against tide. Buy when others are selling and sell when others are buying.  2. If you believe in the growth prospects o...