Insider Trading refers to the buying or selling of a companyís securities by individuals who have access to non-public, price-sensitive information about the company. This practice is considered illegal when such information gives the insider an unfair advantage over regular investors and violates principles of market transparency and fairness. In India, SEBI (Securities and Exchange Board of India) strictly regulates and penalizes insider trading under the SEBI (Prohibition of Insider Trading) Regulations, 2015.

For example, if a company executive learns confidentially that quarterly profits will be much higher than expected and buys shares before this information is made public, that act constitutes illegal insider trading. Similarly, selling shares before negative news is disclosed also falls under the same category. The goal of prohibiting insider trading is to ensure that all investors have equal access to material information when making investment decisions.

Insiders typically include directors, employees, auditors, legal advisors, or anyone who has access to unpublished price-sensitive information (UPSI). Such individuals are expected to maintain confidentiality and refrain from trading based on this information until it becomes public. Companies must also maintain a structured code of conduct and trading window policies to monitor and control insider activity.

On the other hand, legal insider trading can occur when company executives or directors buy or sell shares of their firm with proper disclosure and in compliance with SEBI regulations. These transactions must be reported to the stock exchanges for transparency. In summary, preventing insider trading is crucial for maintaining investor confidence, promoting market integrity, and ensuring a level playing field for all participants in the financial markets.