Every major company has got it’s share on the stock market.The performance of a company directly affects the market value of it’s share. According to the law it is compulsory to disclose some information of the company to the public. But there is some information which is not made public but will affect the price of the share.What if this information is available to some investors? They have an advantage over other investors which is very unjust for others.In the eyes of law it is illegal because it is against the very principles of share trading.
Insider trading refers to the use of significant information of the company,which has not been made public and likely to affect the price of shares, for making personal profits.It may include information regarding future plans,policies,strategies or any future deal or losses. An insider is the one who is connected with the company and have access to company’s information and uses this information for his personal gains. It includes all the relatives and friends of the connected person as well.For eg, the director of the company knows that his company has made a deal with a foreign company because of which the share prices of the company would rise.He tells his wife to buy these shares at current price and makes a profit because of future increase in share prices.
Insider trading is morally incorrect because it results in loss to other investors. Every company should make strict laws against this practice and take many measures to check this issue. The company should lay down proper code of conduct and assign certain penalties against the person who violates this issue.There should be proper monitoring through cameras and phone tapping to keep a check on people having price sensitive information.
Insider trading raises many moral questions. It is obviously ethically wrong to provide advantage to certain investors to make personal gains at the cost of other investors.There are possibilities that is future Insider trading would be considered illegal in India as well.Though there are no strict laws against insiders but SEBI is trying to gain investors confidence by passing certain acts to prevent it.