Current disclosure practices in corporate India are extremely inconsistent, for example only some listed companies disclose monthly sales volumes, which have a significant impact on stock prices when trends change. Companies are obliged to judge whether the information that they are handling amounts to PSI and disclose promptly. (a) Companies need to comply with the ITR by practising an ethos of continuous disclosure of PSI, instead of the current practice of format-driven quarterly disclosures. Improvements are required in several fronts: Quick disclosure of PSI reduces the window for misuse and in order to improve the culture in handling PSI, it is important that failure to make timely disclosures attract penalties. Secondly, enforcement action needs to push corporates to disclose PSI quickly and promptly. The regulator may continue to prefer civil prosecutions (burden of proof is lower but only monetary penalties may be levied) to criminal prosecutions (for jail time) but prosecutors need to prioritise cases on the basis of an assessment of criminality or criminal intent. The regulator needs to evaluate several measures to increase effectiveness of enforcement action.įirstly, insider trading must be acknowledged as a criminal activity.

A review of the Indian enforcement record indicates that Sebi has been remarkably successful in prosecuting organised insider traders (for example, front running) whereas SAT has reversed Sebi's actions in several other cases. Insider traders don't risk capital, quickly unwinding profitable trades once the market factors in the PSI.Įnforcement of prohibitions on insider trading commenced in India over two decades ago in 1992.

Other than corporate insiders who get caught selling ahead of bad news, most insider traders are well-organised corporate outsiders who regularly execute 'arbitrage trades' leveraging PSI supplied by insiders (who usually get a share of profits).

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