Regulating Insider Trading in India: Emerging Trends & Challenges

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Regulating Insider Trading in India Emerging
Trends Challenges
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• The SEBI (Prohibition of Insider Trading)
  Regulations 2015 were implemented by the
  Securities and Exchange Board of India (SEBI) to
  regulate insider trading in India. Insider
  trading refers to the practice of trading in
  securities by individuals who have access to
  unpublished price-sensitive information (UPSI).
  The regulations aim to prevent the misuse of such
  information by insiders and ensure the integrity
  of the securities market. The SEBI (Prohibition
  of Insider Trading) Regulations 2015 replace the
  earlier regulations on insider trading introduced
  in 1992. The new regulations provide a more
  comprehensive framework for regulating insider
  trading and bring Indias regulations in line
  with international best practices. All listed
  entities, their directors, officers, and
  employees, as well as anyone else with access to
  UPSI, are subject to the regulation. Any
  information that is not generally known and that,
  if made public, would probably have a major
  impact on the price of the securities is referred
  to as UPSI. The information may relate to a
  companys financial results, mergers and
  acquisitions, dividends, stock splits, share
  buybacks, bonus issues, changes in capital
  structure, or any other information that may have
  an impact on the companys financial performance
  or prospects going forward. Under the
  regulations, insider trading is prohibited, and
  penalties can be imposed for violation of the
  same. The regulations define insider trading
  broadly and cover any trading in securities that
  is based on UPSI. The regulations also require
  listed entities to establish a code of conduct
  for prevention of insider trading and to monitor
  compliance with the regulations.

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• In addition to the SEBI (Prohibition of Insider
  Trading) Regulations 2015, there are other
  legislations in India that deal with insider
  trading. The Companies Act 2013, contains
  provisions that require companies to maintain
  confidentiality of UPSI and prohibit directors
  and key managerial personnel from trading in
  securities while in possession of such
  information. There are provisions pertaining to
  insider trading in the Securities Contracts
  (Regulation) Act 1956 as well. The Securities and
  Exchange Board of India Act 1992 gives SEBI the
  authority to conduct investigations and impose
  sanctions for insider trading. The Act stipulates
  penalties for insider trading. Emerging Trends
  and Challenges

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• Insider trading has been a prominent issue in the
  securities market in India for a long time.
  Insiders have occasionally engaged in illegal
  activities for personal gain despite the strict
  laws and regulations in place to prevent insider
  trading. There are new trends and upcoming
  challenges in the area of insider trading that
  need to be addressed as Indias securities market
  continues to develop. One of the emerging trends
  in insider trading is the increased use of
  technology for identifying and preventing insider
  trading. Companies are using sophisticated
  algorithms to monitor and analyse trading
  patterns to detect any suspicious behavior thanks
  to the advancement in artificial intelligence and
  machine learning. As businesses increase their
  technological investments to enhance their
  compliance programs, this trend is likely to
  persist. Another emerging trend is the
  globalisation of the securities market, which
  presents new challenges for regulating insider
  trading. The securities market is becoming more
  interconnected as more and more companies are
  going global, which makes it more challenging to
  monitor and regulate insider trading
  internationally. Regulators must work together to
  develop a coordinated approach to regulating
  insider trading and share information across
  borders. Insider trading detection and prevention
  face new difficulties considering social medias
  continued growth. Investors increasingly rely on
  social media platforms like Twitter and YouTube
  for information, but these platforms also give
  insiders a place to share information that may be
  considered sensitive and private. Regulators must
  devise new strategies for monitoring online
  platforms like social media for any suspicious
  insider trading activity.

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• The complexity of financial instruments is
  another obstacle to insider trading regulation.
  The risk associated with Insider trading has
  increased with the introduction of new financial
  instruments like exchange-traded funds (ETFs) and
  derivatives. By obscuring trading patterns, these
  tools can make it challenging for regulators to
  identify insider trading. As the financial
  landscape changes, regulators must adapt and
  create new rules to address the risks posed by
  these instruments. There is a development in the
  responsible investing movement that has
  implications for the regulation of insider
  trading. When making investment decisions,
  responsible investors take governance, social,
  and environmental concerns into account.
  Transparency and disclosure are given more
  importance in responsible investing as investors
  gain a deeper understanding of their
  significance. Increased scrutiny of businesses
  and their adherence to insider trading regulation
  may result from this trend. Insider trading has
  been the subject of several high-profile cases in
  India in recent years, such as the case of Rakesh
  Agrawal v. SEBI (SAT), Equivalent citations
  (2004) 1 CompLJ 193 SAT, 2004 49 SCL 351 SAT
  dated 03.11.2003 and the case of Shruti Vora v.
  SEBI (SAT), Appeal (L) No. 28 of 2020 dated
  12.02.2020. These incidents have made it clear
  that robust regulatory measures are required to
  stop insider trading and preserve the integrity
  of the securities market.

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• In recent years, SEBI has increased its efforts
  to prevent insider trading activities and ensure
  proper enforcement of the regulation. The
  regulator has been actively investigating and
  prosecuting individuals and entities engaged in
  insider trading activities and has also started
  taking legal action against companies and their
  officials for failing to stop insider trading. In
  a recent instance, SEBI fined a company for
  failing to set up a sufficient system of internal
  controls to stop insider trading. The SEBI has
  proposed several changes to the regulation to
  address some of these problems, including the
  SEBI (Prohibition of Insider Trading) (Amendment)
  Regulation 2018, which strengthened and broadened
  the regulation. The amendments included
  provisions requiring the disclosure of trading
  plans, maintenance of a database of people with
  access to UPSI and mandatory education for staff
  members on the subject of insider
  trading.

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• Conclusion Insider trading continues to be a
  major challenge even though the SEBI (Prohibition
  of Insider Trading) Regulations 2015 and other
  legislations related to insider trading offer a
  strong and comprehensive framework for regulating
  insider trading and ensuring the integrity of the
  securities market in India. To maintain the
  integrity of the securities market, regulators
  and market participants must be vigilant and
  adapt to such changes. Emerging trends and
  upcoming challenges also need to be addressed.
  Together, we can prevent insider trading and
  ensure an honest and open securities market in
  India by putting in place strong compliance
  programs. In order to uphold the law and promote
  an atmosphere of accountability and transparency,
  market participants must do their part.
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