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According to the recent survey India is the largest hub of insider trading, which has
determent the interest of individual investors and their confidence in the capital market
because of the non-availability of proper monitoring authority to investigate and
prosecute insiders. If such activities continue the basic function of stock exchange i.e.
capital formation will be reduced as general investors trust will be lost on functioning
of stock exchange.
"Complaining about insider trading without finding a workable solution is like
crying that the government should do something about smoking as it causes cancer,
but doing nothing."
Quote By Trading Guru
Same is the situation with the Indian Government and SEBI both have not been
successful to curb insider trading. Though SEBI is now making some efforts to
prevent insider to trade in stock exchange and disturb the main functioning of it.
Efforts made by SEBI are on a slow pace which needs to be fasten up otherwise this
kind of activities will loses the trust of general investors.
It is also important to curb the insider trading other wise it will not show the correct
and fair prices of shares of each companies.
Insider trading is a victimless crime, which effect large number of general investors,
and they do not even come to know this effect at once. In conclusion it can be said
"It is difficult to prescribe remedies to each one of the trading malpractice in
Indian Stock Market. But the problem of insider trading and secret take over bids
could be tackled to a large extent by appropriate regulatory measures by authority”.
Abid Hussain
Member of Development Capital Market Committee
It is therefore important for there to be markets free from all types of fraud and in
particular insider trading which disenchants the common investor from the workings
of the markets as if he is being invited to play a game of crap with loaded dice.
Unfortunately, with the unearthing of large frauds, even though India is not unique in
this, the concept of corporate good governance has been lost in the war cry for blood.
As a result, the government has gotten into overregulation and micromanagement by
converting good governance into statutory provisions. We tend to forget that
micromanagement cannot stamp out fraudulent action, it can only be reduced by
effective enforcement of the laws, which should prohibit obvious illegalities.
It should not be forgotten that what is sought to be caught is crime and
treating all insiders as inherently tending towards a presumption of unfair dealing
should be avoided. Standards of corporate governance should be left at the helm of
the managers of the company. The regulator should specify in the Schedule to the
regulations a list of optional procedure for limiting the possibilities of insider
trading. What should be mandated instead should be a statement in the annual report
of the degree of compliance with the standards of set forth in
the Schedule. Thus companies, which do not follow corporate governance
guidelines in substance, should be penalized by its shareholders.
Introduction of corporate governance ratings, similar to debt ratings, which would
pressure management to comply with such measures. This could be the missing link
providing a simple number which can be appreciated and understood by the masses
and would indicate the processes a company has put in place for the benefit of their
non-insider shareholders.