Insider trading is illegal in the Indian stock market, as well as in many other countries, because it undermines the fairness, integrity, and transparency of the financial markets. Insider trading refers to the buying or selling of stocks or other securities by individuals who possess material non-public information about the company.
There are several reasons why insider trading is considered illegal:
Fairness and equal opportunity: Insider trading gives unfair advantages to those who have access to confidential information, allowing them to make profits at the expense of other investors who do not possess such information. It undermines the principle of equal opportunity and fair competition in the market.
Market integrity: Insider trading can distort market prices, as individuals with inside information can trade based on knowledge that is not available to the general public. This can create an uneven playing field and erode investor confidence in the market's integrity.
Investor protection: Insider trading regulations aim to protect the interests of individual investors by ensuring that all participants in the market have access to the same information at the same time. By preventing insider trading, regulators seek to maintain a level playing field and protect the rights of all market participants.
Maintaining trust: The stock market relies on trust and confidence. Insider trading can erode public trust in the market, deterring potential investors and damaging the overall functioning of the financial system.
In India, insider trading is specifically prohibited under the Securities and Exchange Board of India (SEBI) Act, 1992, and the SEBI (Prohibition of Insider Trading) Regulations, 2015. These regulations provide guidelines and penalties to deter and punish those involved in insider trading activities
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