Insider trading

Uproot insider trading from your organisation using Velox PIT

Team Infomatics
Feb 24, 2023
Prevent Insider Trading

In the 21st century, information moves at the speed of light. Like photons trying to escape a black hole, even the most secretive of companies cannot keep secrets from their staff.

Let us understand what insider trading is and how you can use technology to protect your organisation from it.

What Is Insider Trading?

Insider trading is the buying or selling of a security by someone who has access to material nonpublic information about the security. The most obvious example is when an executive of a publicly traded company purchases or sells stock based on confidential information about future results.

The most common form of insider trading is for corporate insiders such as officers and directors to use information about their company's financial performance or prospects (such as upcoming business developments) to increase their own personal wealth. For example, if an insider knows that a company will soon be acquired and the price per share will double after the acquisition, he or she could buy shares before the public announcement and sell immediately afterwards for a significant profit.

Insider trading can occur in many different ways, including:

  1. Theft of confidential documents
  2. Bribing insiders to leak confidential information through email or text messages.
  3. Employees using their own accounts to invest in companies they work for (known as self-dealing)
  4. Brokers or financial advisors giving investment advice based on confidential information (insider trading).

SEBI (Insider Trading) Regulation, 1992 framed under Section 11 of the SEBI Act, 1992 intends to curb and prevent the threat of insider trading in securities. It was last amended in 2015.

Overview Of Latest SEBI (Prohibition of Insider Trading) Regulations

  • SEBI has notified and issued SEBI(Prohibition of Insider Trading) Regulations, 2015 on January 15, 2015. These regulations are notified to replace the earlier framework of SEBI (Prohibition of Insider Trading) Regulations, 1992 which are in place for the past two decades.
  • In addition to broadening the definitions of unpublished price-sensitive information, insider and connected persons in SEBI Regulations, 2015 the legal perspective also imposes graver consequences for company officials involved in a selective exchange of price-sensitive information.
  • Under the new regulations, simple correspondence of UPSI would be culpable; anyway in prior SEBI Regulations, 1992 simple correspondence of UPSI (without any trade) would not be continued. Corporates are presently needed to raise their eye temples on uncovering the UPSI specifically.

The Securities and Exchange Board of India (SEBI) considers insider trading illegal, and violators may be charged a penalty of INR 250,000,000 or three times the profit made out of the deal, whichever is higher.

How to Prevent Insider Trading?

The best way to keep your employees from engaging in insider trading is to put policies that clearly outline what constitutes illegal behaviour and how it will be punished if broken. The employer should also ensure that all employees are aware of the rules governing insider trading so that they do not misuse them while dealing with financial markets or securities exchanges where they work in an advisory capacity.

 In order to ensure compliance with the Securities and Exchange Board of India's (SEBI) Prevention of Insider Trading Regulations, 2015, a trusted solution for maintaining SDD ( Structured Digital Database) becomes essential. It is also mandatory for all listed companies and any person who is in possession of material information. The SDD should be maintained by the company or any of its directors, key managerial personnel or employees.

Failure to comply with these regulations could result in heavy fines and even jail time for those involved in insider trading.

To keep up in the compliance game, an organisation can consider adopting third-party software and solutions that can help them execute and monitor the policies efficiently and effectively. 

One of them is Velox PIT by Infomatics.

Know about Velox PIT and its advantages

Velox is a web-enabled multi-scrip and multi-asset class solution for end-to-end tracking and management of employees' investments and holdings to ensure compliance with SEBI's Prohibition of Insider Trading Regulations & UPSI.

TRUSTED by 30+ Institutions, including nine large mutual funds organisations and more, Velox PIT offers you the following benefits

  1. Complete visibility over employee investment requests & reporting
  2. Automated trade request approvals/rejections based on preset rules
  3. Control over UPSI & SDD adherence
  4. Automatic reminders for periodic submissions
  5. Easy access to employee profiles, requests, reporting and defaulter list

Takeaway: Technology can help your organisation protect itself from investor losses due to insider trading. Using real-time data about who is accessing data and which data is likely to be misused, and where you can keep employees and contractors in check. You can ensure that you make the right decisions and mitigate risk across the company. The bottom line is to have systems in place that can help you stay compliant and offer security to the sensitive information stored in the systems. 

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