Not So Watertight: the Scope of “Insider”—Under the Insider Trading Laws in India
Keywords:
Insider, SEBI, Connected Person, Trade, UPSI, GAI, Trading LawsAbstract
The article analyses the definition of “Insider” under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“Regulation”). An attempt has been made to scrutinize the elements determining Insider under the Regulation. The current regime, describing the scope of Insider, is not watertight thus leaving a room for ambiguity and also excludes certain essential determinants which would otherwise be considered as Insiders. The article evaluates the definition of “Connected Person” to determine that the “Outsiders”, who may have access to such inside information of a corporation and trade on that basis, have been excluded from the ambit of Insider. The article shows how other countries have realized the mandate of including “Outsider” for the purpose of prohibiting Insider Trading. In furtherance, the article also breaks down the definition of Unpublished Price Sensitive Information (“UPSI”) which is contended to have been narrowly defined. The definition pays no heed to the “Outside Generated Information”, which may have an impact on the price of securities of the corporation. Moreover, the novel concept of Generally Available Information (“GAI”) has been relied more upon for the purpose of defining of UPSI. The concept of “Non Discriminatory Basis” has been used to define GAI. The drafters purposefully avoided laying down what constitutes “Non- Discriminatory Basis” with the object of preventing the narrowed down interpretation of GAI. The article contends that such avoidance would lead to a dubious situation and constrained interpretation of GAI. The article makes a comparative study of the Insider Trading laws in the other countries with that of India’s, examining and suggesting the approach adopted, which is more stringent, leaving a negligible scope of interpretation.
References
1. Jeffrey P. Stickler, Inside Information and Outside Traders: Corporate Recovery of the Outsider 's Unfair Gain , 37 Cal. L. Rev. 483, 483 (1985).
2. Heller, Chiarella, SEC Rule 14e -3 and Dirks: "Fairness" versus Economic Theory, 37 Bus. Law. 517, 555 (1982).
3. Schotland, Unsafe at Any Price: A Reply to Manne, Insider Trading and the Stock Market, 53 Va. L. Rev. 1425, 1438 -39 (1967).
4. Langevoort, Insider Trading and the Fiduciary Principle: A Post -Chiarella Restatement, 70 Cal. L. Rev. 1, 2 (1982).
5. Cyril Shroff, Indian Update – New Insider Trading Laws in India : How much is too much?, XMBA (Apr. 22, 2015), http://xbma.org/forum/indian-update-new- insider-trading-laws-in-india-how-much- is-too-much/
6. P.J.THOMAS, REPORT ON THE REGULATION OF THE STOCK MARKET IN INDIA (Government of India, Ministry of Finance, 1948).
7. Securities and Exchange Board of Indi a (Prohibition of Insider Trading) Regulations,1992, Gazette of India (Nov 11, 1992).
8. N.K.SODHI, REPORT OF THE HIGH LEVEL COMMITTEE TO REVIEW THE SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 1992 (Government of India, Ministry of Finance, 2013).
9. Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, Gazette of India, (Jan. 15, 2015).
10. Id. at 2(e).
11. Supra note 10.
12. Supra note 10, at 2(n).
13. Supra note 10, at 2(d).
14. Sodhi, supra note 9.
15. Sodhi, supra note 9, at para16-23.
16. Sodhi, supra note 9, at para 22.
17. Sodhi, supra note 9, at para 22.
18. Supra note 10.
19. Somasekhar Sundaresan, Outsiders cannot be insiders , BUSINESS STANDARDS (May 17, 2015, 22:34 IST), http://www.business-standard.com/article /opinion/outsiders-cannot-be-insiders- 115051700724_1.html
20. Chiarellav. United States, 445 U.S. 222 (1980); see also United States v. Courtois, [1981 Transfer Binder] FED. SEC. L. REP, (CCH).
21. In re Cady, Roberts & Co., 40 S.E.C. 907, 912 (1961).
22. Dirks v. SEC, 463 U.S. 646 (1983).
23. Id. at 655 n.14.
24. Supra at 21.
25. WILLIAM K.S.WANG & MARC I.STEINBERG, INSIDER TRADING 291(Oxford, 3rd ed. 2008).
26. United States v. O ’Hagan, 521 U.S. 642 (1997).
27. United States v. ReBrook, 837 F. Supp 162 (S.D. W. Va. 1993).
28. Supra note 30, at 170 -171(quoting W. Va. Code § 6B - 2-5(e): “No present or formal public official or employee may knowingly and improperly disclose any confidential information acquired by him or her in course of his or her official duties nor use such information to further his or her personal interest or the interests of another person.”).
29. Supra note 31, at 171.
30. Supra note 21, at 242.
31. U.S. GOV’T PRINTING OFF., GPO-111-56, PREVENTING UNFAIR TRADING OF GOVERNMENT OFFICIALS: SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS OF THE COMM. ON FINANCIAL SERVICES 4 (2009).
32. Donna M. Nagy, Insider Trading, Congressional Officials, and Duties of Entrustment, 91 B. U. L. Rev. 1106, 1130 (2011).
33. Sodhi, supra note 9.
34. REPORT OF THE EMERGING MARKETS COMMITTEE OF THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS (IOSCO, 2003).
35. Id. at 83-85.
36. Supra note 10, at 2(e).
37. Supra note 10.
38. Supra note 10.
39. Victor Brudney, Insiders, O utsiders, and Informational Advantages under the Federal Securities Laws, 93 Harv. L. Rev. 322, 329 (1979). JCMSL (2018) 33-41 © Law Journals 2018. All Rights Reserved Page 41
40. Brudney, supra note 44, at 329.
41. Arthur Fleischer Robert, H. Mundheim, John C. Murphy, An initial inquiry into the responsibility to disclose market information, 121 U. Pa. L. Rev. 798, 799 (1973).
42. Paula J. Dalley, From Horse trading to insider trading: The Historical Antecedents of the Insider Trading Debate, 39 Wm. & Mary L. Rev. 1289, 1325 (1998).
43. GULIAN C. VERPLANCK, AN ESSAY ON THE DOCTRINE OF CONTRACTS 112- 113 (Lawbook Exchange, 2006).
44. Brudney, supra note 44, at 330.
45. John F. Barry, The Economics Of Outside Information And Rule 10b-5, 129 U. Pa. L. Rev 1308, 1309 (1981).
46. Bright line Rule , Black ’s Law Dictionary (10th ed. 2014).
47. Sodhi, supra 9.
48. Rakesh Agarwal v. SEBI, (2004) 1 CompLJ 193 SA T.
49. Supra note 10.
50. Supra note 10, at 2(n).
51. Criminal Justice Act Part V , 1993, c.36, § 56.
52. Id. at § 60(4).
53. PAUL L. DA VIES & SARAH WORTHINGTON, GOWER AND DA VIES’ PRINCIPLES OF MODERN COMPANY LAW 1141 (Sweet & Maxwell, 9th ed. 2012).
54. Securities Exchange Commission Act, 15 U.S.C. § 10b (1934).
55. Securities Exchange Commission Rules, 17 C.F.R. § 240.10b-5 (1951).
56. Supra note 21.
57. Supra note 28, at 374.
58. Supra note 50, at 1325-1327.
59. The Stop Trading and Congressional Knowledge (STOCK) Act, Pub.L. 112– 105, S. 2038, 126 Stat. 291 (2012).
60. Supra note 9, at 20.
61. Supra at 43.
62. Supra note 9, at 21.
63. Supra note 15, at 21-22.
64. Supra note 28, at 157.
65. Union States v. Libera, 989 F.2d 596, 601 (2d Cir.).
66. Supra note 4, at 157.
67. Supra note 4, at 157.
68. In Re Faberege, Inc ., 45 S.E.C. 249, 1 S.E.C. Docket 21 (1973).
69. Supra note 74, at 255.
70. S.E.C. v. Ingoldsby, [1990 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 95,351.
71. Exchange Act Release Nos. 33 -7881, 34 - 43154, IC -24599, File No. S7 -31-99, 73 S.E.C. Docket 3 (Aug. 15, 2000).
72. Id. at § 243.100(a).
73. Supra note 73.
74. Financial Services and Markets Abuse Act, 2000, c.8, § 118C.
75. PAUL U. ALI & GREG N. GREGORIOU, INSIDER TRADING- GLOBAL DEVELOPMENTS AND ANAL YSIS 114 (CRC Press, 2009).
76. Supra note 82, at 100.
77. Supra note 82, at 112.
78. Supra note 82, at 112.
79. Corporations Act 2001 (Cth) s 1042C (Austl.); see also John F. Barry, The Economics of Outside Information And Rule 10b-5, 129 U. Pa. L. Rev. 1308, 1309 (1981).
80. T. Bostock, Australia’s New Insider Trading Law, 10 Company and Securities Law Journal 165, 171 (1992).
81. R v. Firns, (2001) 19 A.C.L.C. 1495.
82. G. LYON & J. DU PLESSIS, THE LAW OF INSIDER TRADING IN AUSTRALIA 32-36 (The Federation Press, 2005).
83. Keith Kendall, Information that is “generally available ” under the Insider Trading provisions in Australia, 21 Journal of International Banking Law and Regulation 29-37 (2006). Cite this Article Siddesh Biyani , Shreya Saraiya . Not So Watertight: the Scope of “Insider”—Under the Insider Trading Laws in India. Journal of Capital Market and Securities Law. 2018; 1(2). 33-41p.
