Project title: Insider Trading and Regulatory compliance Reporting

Statement of research Purpose: The purpose of research is to understand the

mechanics of Insider trading and to compare the regulatory reporting and
compliance of various nations to avoid frauds related to Insider trading.
Project Aims/ Research questions: The project aims at answering the below
questions:
1. What are the statutory laws of various nations related to insider trading?
2. What are the differences in regulatory reporting between nations with
respect to insider trading?
3. How are these laws related to insider trading being enforced in various
nations?
Proposed methods : Qualitative and quantitative research will be adopted to
accomplish the current research. Secondary data will be used to collect
information regarding the Insider trading laws and the compliance reporting of
various nations.
Please outline if your research raises any particular ethical issues and how
you plan to address these issues: The research doesnt raise any ethical
issues as the analysis is done based on the secondary data which is publicly
available.
Research ethics checklist:
1) No
2) No
3) No
4) No
5) No
6) No
7) No
8) No
9) No
10)No
11) No
12) No
13)Yes
14)Yes

Introduction
Insider trading is the form of trading a public listed company's stock or
other securities (such as bonds or stock options) by individuals with
access to material, non-public information about the company. Insiders
in a company typically include officers, directors, and employees.
Insider trading can be illegal or legal depending on the timing of the
trade made by the insider. It is illegal if the material information is still
nonpublic. Trading with special knowledge (significant, confidential
information related to the development of the company, a possible
Merger or an acquisition, Financial results etc.) is not fair to other
investors who don't have access to such knowledge. Illegal insider
trading also includes tipping, which means providing information to
others when you have any sort of nonpublic information.
Trading by employees is commonly permitted as long as it is within the
rules and regulations of the company and if it does not rely on material
information which is not available to the public. Many jurisdictions
require such trading be reported so that these can be monitored. In the
United States and several other countries any trading by the insiders
must be immediately reported to the regulator or should be publicly
disclosed, usually within a few business days of the trade. Inside
trading need not necessarily be associated with the directors who are
then convicted if found to be fraudulent. Brokers, lawyers and even
family members can be guilty. Insider trading is legal once the material
information has been made public, as there is no direct advantage over
other investors. Legal trades by insiders are common, as employees of
publicly traded corporations often have stock or stock options.
Trading based on insider information is illegal in various countries,. The
United States of America was the first country to regulate insider
trading by formally enacting a legislation. This decision had surprised
many around the world at that time because Insider trading was
considered as quite normal form of trading. The U.S. Securities and
Exchange Commission(SEC) is the regulator that governs the securities
market and also enforces them along with the Department of Justice.
The SEC is the most active of all the worlds financial regulatory
institutions at prosecuting insider trading and the laws. The insider
trading prohibitions of the US are based on English and American
common law prohibitions against fraud. Section 15 of the Securities Act
of 1933 contained prohibitions of fraud in the sale of securities which
were greatly strengthened by the Securities Exchange Act of 1934. The
SEC, requires all trades by insiders are made public in the United
States through Securities and Exchange Commission filings, mainly
Form 4.

In the United States, Section 16(b) of the Securities Exchange Act of

1934 prohibits short-swing profits (from any purchases and sales within
any six-month period) made by corporate directors, officers, or
stockholders owning more than 10% of a firm's shares. Under Section
10(b) of the 1934 Act, prohibits fraud related to securities trading. The
Insider Trading Sanctions Act of 1984 and the Insider Trading and
Securities Fraud Enforcement Act of 1988 place penalties for illegal
insider trading as high as three times profit gained or loss avoided from
the illegal trading. Thus, the United States is generally viewed as
having the strictest laws against illegal insider trading, and puts in
place the resources to enforce them.
UK differs from US in the way the law is interpreted and applied with
regard to insider trading. The London Stock Exchange is the fourth
largest exchange in the world by market Capitalization. In the United
Kingdom the Financial Services Authority (FSA) regulates securities
trading. The FSA aims to ensure that the stock markets are orderly and
fair. Insider trading was considered illegal in 1980, but the FSA was not
as successful as US when it comes to enforcement. In the Financial
Services and Markets Act of 2000, stricter and more specific guidelines
were laid out by the FSA. In the UK, the relevant laws are the Criminal
Justice Act 1993 and the Financial Services and Markets Act 2000,
which defines an offence of market abuse. The principle is that it is
illegal to trade on the basis of market-sensitive information that is not
generally known.
When compared to the US and UK, countries like China, India and Japan
are still lagging in the way Insider trading is regulated and controlled.
By market capitalization, the Tokyo Stock Exchange is the third largest
stock exchange in the
world. In 1988, Japan passed its first insider trading law with the
Financial Markets Abuse Act. The Financial Markets Abuse Act carries a
maximum of three years in prison and a maximum fine of JPY 3 million
($37,800 as of 6/8/12) for insider trading convictions. The securities
market in China is regulated by the China Securities Regulatory
Commission (CSRC). China first made insider trading illegal in 1993
with the introduction of the Establishment of Securities Companies with
Foreign Equity Participation Rules. Chinese economy is still catching up
with the world in terms of insider trading regulation. Insider trading in
China is considered to be so widespread that about 80 percent of all
securities cases are connected with insider trading. India has two
major stock exchanges: Bombay Stock Exchange and National Security
Exchange of India. In 1992, India enacted the Securities and Exchange
Board of India (SEBI) to regulate the market and enforce insider trading
laws. In 2010, SEBI completed 10 insider trading cases, but there was

not a criminal conviction. India has not made a criminal conviction of

insider trading to date.
The first step for a country to regulate insider trading is developing
federal laws and regulations. The next step is creating a federal
organization to enforce the laws and to fight against the crime. US is
far above other countries in terms of the number of cases reported
under Insider trading. Also the country has invested huge amount of
infrastructure in monitoring the insider trading activities in companies
and controlling them. The surveillance system that they possess is far
superior. The aftermath of the Recession in US has led to the investors
around the world lose confidence in the stock market. In order to
restore market confidence the global regulators see an increasing need
to regulate the insider trading and to have laws for strict enforcement
of the insider trading laws.