Disciplining the Insider in the Capital Market Emerging Challenges and Way Forward

Abstract

Insider trading, the use of privileged information for trading in shares and securities for the purpose of making a gain (or to avoid a loss) at the expense of the uninformed general public, is morally and legally reprehensible. It is the most common form of malpractice in the securities market and is also the most menacing one as it leads to information asymmetry to the detriment of small investors. It has been identified as an area affecting equal opportunities for investment in financial markets and has always been the stuff of controversy and scandal, making headlines and destroying reputation of not only companies but economies. It is at the very root of discrimination, as it gives a small, usually already relatively privileged minority, an unfair advantage over the broad majority who do not enjoy the same equality of information or opportunity. The eradication of this practice is essential to the efficient working and reputation of any market, and the society in which it operates as it not only hurts the integrity of the market but also the confidence that the general public, domestic and international, reposes upon it and finally the economic growth of the country. For this reason, regulation of insider trading on the securities market is a subject matter of great interest to policy makers, investors and the general public. newlineIndia, being one of the fastest growing economies of Asia, needs to have an effective check on occurrence of insider trading in financial markets so as to provide a fair and equal play field for domestic and international investor, if it wants to rank in the major developed economies of the world. The primary focus of this thesis is on the regulation of insider trading in India and thus an attempt has been made to analyze it from variety of perspectives. Although India has since liberalization taken strong measures to curb this menace of insider trading by way of introduction of Securities and Exchange Board of India Act, 1992, SEBI (Prohibition of Insider Trading) Regulations, 1992...