What is Insider Trading?

Insider trading refers to the use of price-sensitive information by the insider/s of the company to make private gains or avert private losses at the cost of investors not having access to such information. The insider means a person who may reasonably be expected to have unpublished price sensitive information in respect of securities of that company. The person who is connected or deemed to be connected for the preceding eight months or a director of the company or senior executive or auditors, legal or financial advisors, or bankers or solicitors, may possess price sensitive information which is yet to be published. If such a person who deals, or counsels anyone to deal, in the securities of the company, on the basis of unpublished information available with him amounts to insider trading. This is irrespective of it is done either on his own behalf or on behalf of any other person.

The insider trading is an unfair practice and it is an offense as per SEBI regulations. A person found guilty of offence of insider trading will be liable to pay civil penalty up to three times the profit gained or loss avoided by him as a result of dealing. He may be further punished with rigorous imprisonment up to two years and or liable to pay a fine of Rupees five lakh.