This article is authored by Shubham Gupta, a 4th-year law student at Institute of Law, Nirma University
Insider trading is a serious white-collar crime in
India. Insiders tend to manipulate the
market movement by having the unpublished price sensitive information (UPSI)
over the information available in the public
domain. However, in India, certain aspects of USPI are still brusque and
obscured in SEBI (PIT) 2015. In SEBI (PIT) 2015, the materiality of information
is a key determinant factor that catalyzes
insider trading. However, when the part of the non-material
information is wiped out from an insider to an analyst which if collated with the generally available
information would make the analyst in possession of Unpublished Price Sensitive
Information, Indian legislation loses its sheen over this conditional
situation.
Indian regime of Insider Trading is iced up on this
issue and does not deliberate on this approach. In U.S. legislation, it has
framed its approach regarding this issue of Insider Trading, namely Mosaic
Theory of Materiality, but India is yet to begin its chapter. Tribunals and
Courts have been unlettered on such issue, remarking a fundamental gap in
determining the materiality of information. Many such cases are flowing in
market and investor protection groups have failed to acknowledge the generous
concern of Market effluence. This approach would not only soon find its space
in India but will be lucidly deliberating
on this approach to prevent insider trading. Rule of purposive interpretation would elucidate on this approach which
deals with such significant ‘mosaic’ ovulated from a part of UPSI and a part of
PSI.
In SEBI (PIT) Regulation, 2015, insider trading is an offense when there is a communication, counseling or procurement of UPSI from insider
to non-insider, or when the trade has been done while in possession of UPSI.
UPSI stipulated as any material information which is not generally available
and which has a material effect on the
price of securities listed or proposed to be listed. However, a part of UPSI is
non-material in its sense but if collated with generally available information
become material and create a significant mosaic of material information. This
information which has been created through a matrix
of information could be used by the analysts to do insider trading in the
securities of a company and thus, regulations lose
its efficiency. For e.g. if an analyst procured a part of UPSI through any
means and collate it with the information already reeling in the market like media
reports, press briefs, and public the announcement, but does brain-storming over the permutation and combination of
the coming deal and trades while in the possession of this available
information, would this act of trading amount to Insider Trading in India.
The fundamental issue revolves here is ‘Whether an
analyst would be charged for the act of insider trading if he has edge over
information due to his expertise skills and working on permutation and
combinations of such half-received information’. This question has been
marginally touched up by U.S. Court but failed to explain the cut and dried
formula. In Elkind v. Liggett &
Myers, Inc., U.S Court of Appeals in 2nd Circuit address that any
skilled analyst who has edge over information due to any use of any part of the
non-material information, such
procurement would amount to Insider trading. However, the U.S. had shown deviance
from such approach in further cases. In
Re Dirks, that an analyst may use UPSI which may be immaterial itself in
order to fill in ‘interstices of analysis’; this process is legitimate even
though ‘tidbit’ of such information
may assume heightened significance when woven by the skilled analyst in the
matrix of knowledge obtained elsewhere.
In Dirks v. SEC,
the court acknowledged that the analyst must remain free to obtain
information from the corporation to fill in the interstices in the analysis. The rationale proof for this process is the
skills and expertise employed by the analyst and essential for market
efficiency. This information has not been merely gulped without the application
of mind but due to his robust experience in the field. Therefore, this creates a serious doubt on the illegitimacy of such act. Thus, it would be a dilemma for Indian Courts to pope up according to the given jurisprudence in
Securities Law because the SEBI Act and regulation thereof have been
implemented with the purpose of market efficiency and investor protection.
Other facets that determine
that materiality of information is such a situation
is whether the disclosure of such omitted fact would be seen by the reasonable
investor as significantly altered the total
mixture of information available.[1]
However, the debated jargon is ‘reasonable investor’. Whether the court must
refer the ‘reasonable investor’ as in view of an ordinary investor or a
sophisticated analyst having expertise in the market affluence. This aspect would pose a serious question ‘whether the
skills and expertise employed by sophisticated analysts would rule over the
interpretation of materiality in the evolving jurisprudence’.
The Courts or tribunals may view such a lurking question
of the materiality of information, as the information obtained cannot be viewed in a
vacuum and thus any kind of collation
would amount to Insider Trading. However, the Rule of purposive interpretation avows that a liberal approach towards market
efficiency because it reaffirms the established practice from which the
benefit, relief, and remedy may flow. The striking outlook, here, is that the
court or tribunals may resort to the purpose of enforcement of PIT regulations.
That, so far as, the aspects of securities market concern, it is always a
top-notch priority to protect investors from any kind of fraud. Therefore, the court should view such obtained information in the totality of the
circumstances and whether the information is capable of changing the conclusive decision of the analysts in
general. Not only, would this create a difference in a level
of the approach adopted by an ordinary
person and a skilled analyst, but significantly this would reform the existing
modus operandi employed by other insiders including directors, promoters, KMP
etc. by stimulating restrictive disclosure in the public or family events also.
The balance of mixed information and a UPSI must be addressed through a circumstantial approach in terms of ordinary categories in which such obtained
information will create an asymmetry in the market. Sparingly, even information which is not material in nature but
tends to become material in the near future must attract the prohibition of insider
trading regulation.
سنتحدث في مقالنا لليوم عن دور محامي قضايا أسرية بالرياض والدور النبيل الذي يقدمه في المحافظة على الأسرة كونها نواة المجتمع. افضل محامي قضايا أسرية بالرياض
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