Corporate whistleblowing/vigil mechanism in India: A strong tool for detection and deterrence of insider trading

Insider trading is a securities fraud or a corporate crime of tremendous magnitude caused by manipulation of stock markets by insiders. Insiders may be anyone with a brokerage account could make money in the financial markets if they know what is going to happen tomorrow. Corporate insiders have exactly that advantage at times since they have access to non-public price-sensitive information. Consequently, securities laws prohibit insiders from trading on such information in order to maintain a level playing field. Corporate insiders who do engage in trading on non-public inside information are guilty of illegal insider trading. Officers, directors, and employees of public corporations who buy and sell stock they own in their companies are required to report those transactions to the Securities and Exchange Board of India(SEBI). Illegal insider trading is not limited to corporate insiders. If friends, family, and business associates of corporate insiders are tipped and trade on non-public confidential information, then they are guilty of illegal insider trading. Similarly, employees of accounting, law, banking, brokerage, audit and printing firms who have access to non-public corporate information of a publicly traded company to which they provide services are prohibited from trading on such inside information. Every employee of the organization knows about the facts of any irregularity happening in the organization. So they always bothered to blow a whistle of illegal or suspected wrongdoings in the workplace. In India, the scope of laws and protection of whistleblower is limited. It is important to initiate a protection and incentives policy for those who blow whistle against illegal insider trading or any securities fraud. Whistleblowing could be used as a channel of unveiling information about illegal or unethical activities, thus helping to take a remedial step towards reduction of wrongdoing or misconduct. The alleged misconduct may be classified in many ways such as a violation of a law, rule, regulation or harm to shareholders’ interest. There have been a number of recent developments in the corporate whistleblowing policy arena, which have a thrust to bring into the limelight.