The Need to Legalize and Regulate Insider Trading - An Analysis
Keywords:Privacy Laws, Kotak Committee, Fiduciary Duty, Capital Markets, SEBI (Prohibition of Insider Trading) Regulations 2015
Insider trading is perceived as a problem across capital mar-kets. The Securities Exchange Board of India (SEBI) created the SEBI (Prohibition of Insider Trading) Regulations, 2015, which criminalizes insider trading. However, insider trading laws have faced several problems at the implementation and enforcement stage. This article considers these problems from the viewpoint of the economic rationale that insider trading should be permitted in capital markets and thus le-galized. These economic arguments have largely been ig-nored by regulators who have continued to come down hard upon insider trading, despite limited success. Moreover, due to concerns related to privacy, insider trading investigations may face greater hurdles in the future. This article takes these factors and economic arguments into consideration and balances them against the regulators' concerns to suggest that insider trading be not only prima facie legalized, but also regulated when there is a breach of fiduciary duties or when there is a dissemination of positive information.
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