Insider Trading in India-an Analysis of Yesterday, Today and Tomorrow
History of Insider Trading Laws
United States of America was the first country who introduced the laws on insider trading, immediately after their market crashed during the Great Depression. The Securities Act, 1933 prohibited fraud in the sale of securities. However, it was in 1934 when the Securities Exchange Act for the first time legally recognized ‘insider trading’ as an offence. It addressed the issue both directly and indirectly by prohibiting short swing profits made from any trading within a 6 month period by any insider (corporate directors, officers or stockholders owning more than 10% of a firm’s shares). It also contained provisions prohibiting fraud related to securities trading. However, insider trading laws were mostly built with the support of US courtroom decisions. Ultimately, two legislations were enacted which specifically addressed the issue of insider trading, firstly, by the Insider Trading Sanctions Act, 1984 and secondly, by the Insider Trading and Securities Fraud Enforcement Act, 1988.
‘Utpal Bhattacharya and H. Daouk, in their study on insider trading, state that the jurisprudence on insider trading saw a rise from the 1990s, and only 81 countries out of 103 countries reviewed and had insider trading laws, while prosecution took place only in 38 countries.’
In India, several committees were formed to check the applicability of the US regulations on Indian soil. The first committee which took the initiative to evaluate the regulations on short swing profit was PJ Thomas Committee, thereby introducing Sections 307 and 308 in the Companies Act, 1956. This basically requires the directors and managers of the company to make shareholding disclosures. However, such discloser requirements were still not enough to curb the nuisance and further deliberations were thought necessary over the matter. Hence, in 1979, Sachar Committee was formed, followed by the Patel Committee (1986) and finally Abid Hussain Committee (1989). All these three
United States of America was the first country who introduced the laws on insider trading, immediately after their market crashed during the Great Depression. The Securities Act, 1933 prohibited fraud in the sale of securities. However, it was in 1934 when the Securities Exchange Act for the first time legally recognized ‘insider trading’ as an offence. It addressed the issue both directly and indirectly by prohibiting short swing profits made from any trading within a 6 month period by any insider (corporate directors, officers or stockholders owning more than 10% of a firm’s shares). It also contained provisions prohibiting fraud related to securities trading. However, insider trading laws were mostly built with the support of US courtroom decisions. Ultimately, two legislations were enacted which specifically addressed the issue of insider trading, firstly, by the Insider Trading Sanctions Act, 1984 and secondly, by the Insider Trading and Securities Fraud Enforcement Act, 1988.
‘Utpal Bhattacharya and H. Daouk, in their study on insider trading, state that the jurisprudence on insider trading saw a rise from the 1990s, and only 81 countries out of 103 countries reviewed and had insider trading laws, while prosecution took place only in 38 countries.’
In India, several committees were formed to check the applicability of the US regulations on Indian soil. The first committee which took the initiative to evaluate the regulations on short swing profit was PJ Thomas Committee, thereby introducing Sections 307 and 308 in the Companies Act, 1956. This basically requires the directors and managers of the company to make shareholding disclosures. However, such discloser requirements were still not enough to curb the nuisance and further deliberations were thought necessary over the matter. Hence, in 1979, Sachar Committee was formed, followed by the Patel Committee (1986) and finally Abid Hussain Committee (1989). All these three
Bibliography: [ 9 ]. Hindustan Lever Ltd. V. SEBI, (1998) 18 S.C.L. 311 [ 10 ] [ 15 ]. Neha Jain, “Significance of Mens Rea in Insider Trading”, Comp. Law. 2004, 25 (5), 132-140 [ 16 ] [ 17 ]. Regulation 5 of the Insider Trading Regulation, 1992 [ 18 ]