This article is written by Prachi Shah & Komal Shah, Team LawSikho.

The most valuable commodity I know of is information.

-Wall Street (1987)

You know something that others don’t know. You take advantage of that, benefit from it to the disadvantage of everyone else. 

That’s what insider trading is about. 

Insider trading is an illegal act of dealing in (buying, selling, subscribing to) securities by people who have access to sensitive and confidential unpublished information relating to such securities. 

Okay. Got it. But why should I bother if my employee wants to make a quick buck out of some information? 

Because it can impact the market price and the demand for your shares beyond what you can imagine. It can beef up the demand for your shares to crazy levels on particular days. It can also bring in a sudden bearish trend, completely unconnected with the fundamental elements of the business track record and performance of the company so far, which are some grounds on which long term investors usually invest. 

On top of it, you gain the reputation of being an “insider-driven scrip” and at the end of it, the insiders end up settling the case with SEBI for mind-boggling amounts! (see a recent one here).

The next logical question would be as to who are these insiders? 

Well, it’s not just your board of directors and senior management. It’s practically anyone who has access to unpublished information about your company that can impact the share prices. And then there are employees in your business and operations department who have no clue about all of this.

They’ve got the shares by exercising their ESOPS, and being well versed with the climate within the company, they’re simply out to sell their shares. To them, there should be nothing wrong about it. This is why you need to read the rules and the penalty chart out to them in a manner they can understand.  

So here are a few tips on how you can get through to your employees about insider trading and its consequences:

#1 Make your policies readable

Many companies think that framing an insider trading policy as required and putting it up on the website and sharing it with employees does the job. Who has the time (or the inclination) to go through a drab, legalese-infested 30-page insider trading policy? How can companies expect the entirely non-legal crowd to not only go through such insider trading policies but also understand everything and implement it?

First, reduce the size. Make it visually appealing. Add GIFs, if need be. Use simple and short sentences. Make it easy to comprehend. Just include those points that your guys actually need to take care of. Use the same innovative language with your policies that you use while asking them to leave the toilets clean. 

It works.

#2 Route the communication in the right manner

In no way can circulating a standard, monotonous policy pdf by e-mail be the correct route to take by companies. So, what can one do? Know the grapevine channel for your company? Is it Skype for Business? Is it WhatsApp? Use that to circulate your policies – after making them readable, of course.

It is 2020 though. Maybe it is time to start thinking of an upgrade. To leave policies and pdfs behind. Maybe the way to get through is direct communication. One of the easiest ways to make employees interested and aware is by bringing them together in a room and telling them what exactly can happen if they buy or sell shares while possessing unpublished information that can affect the market price.

They’re more likely to listen and understand if the person leading the communication is one of their own – like someone from the legal department and if the communication doesn’t become a “ lecture”.

#3 Use the ‘new-age’ routes

Podcasts are a new rage. A podcast of every kind, every genre – funny, scary, realistic, educational, exists on Spotify and other apps, today. A single private podcast or series of those; can be circulated amongst employees. 

Experts can record such podcasts, impart knowledge in the simplest terms and teach employees the basics of insider trading. Employees can listen to it anytime – while commuting, over a holiday, while taking a break, even while working. It is easy to access, an employee can be anywhere, could be doing anything and still acquiring the requisite knowledge. 

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It is a unique way for a company to get its job done. It can also be a topic of conversation amongst employees during lunch hours. Each can share their own interpretation and perspectives. Ideas can be exchanged and discussions may be more fruitful. 

#4 Ensure that they have “got it”

You can do this by giving them dummy situations like “Would you buy the shares of the company while in this situation?” Their responses will tell you if they have indeed, understood what they’re supposed to do (or not do).

Now, the actual question is – how far are you willing to go? Will companies actually engage with reputed securities lawyers or experts to impart knowledge each time the company undergoes a personnel change? What happens when the law keeps changing and companies need to keep employees informed at all times? And the costs of undertaking different methods of making employees not only aware but also interested? What if the intention is right but there is no way to implement it? What if companies do not have big budgets or necessary resources to undertake any of the innovative or fancy ways of imparting knowledge? 

Well, why don’t you arm-up your legal department to do this on a periodical basis? 

We can help! 

Here’s a course that can comprehensively guide your legal guys in not only insider trading but in how to deal with SEBI for a lot of things, from drafting replies to show cause notices, to how to apply for settlements. 

Check out our Certificate Course in Capital Markets, Securities Laws, Insider Trading and SEBI Litigation here. You can download our free material, or give a call to us for a free career counseling session. The course enrolments close TOMORROW!

We have listed a few of the exciting exercises from our weekly assignments below. You can go through the entire list on the course page.

• How to draft an appeal to be filed before the Securities Appellate Tribunal in respect of a matter relating to the unfair trade practices regulations
• How to draft an appeal to be filed before the Securities Appellate Tribunal in respect of a matter relating to insider trading regulations;
• How to draft an appeal to be filed before the Securities Appellate Tribunal in respect of a matter under Takeover Code;
• How to draft an appeal to be filed before the Securities Appellate Tribunal against Stock Exchange decisions of delisting or refusal to list;
• How to draft an appeal to be filed before the Securities Appellate Tribunal against a debarment, suspension, cancellation or surrender order under the SEBI (Intermediaries) Regulations, 2008
• How to draft an appeal to be filed before the Securities Appellate Tribunal against the orders of the Insurance Regulatory and Development Authority;
• How to file an intervention application for hearings before the Securities Appellate Tribunal;
• How to file a Special Leave Petition before the Supreme Court under Article 136 of the constitution against orders of SAT;
• How to file a writ petition before the High Court under Article 226 of the Constitution of India against circulars issued by SEBI.

If you have any queries, comment below or schedule a career counseling session by calling 011-4084-5203.

Other courses open for enrolments currently until tomorrow are:

DIPLOMA

Diploma in Cyber Law, Fintech Regulations and Technology Contracts

Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution

EXECUTIVE CERTIFICATE COURSES

Certificate Course in Prevention of Sexual Harassment at the Workplace

Certificate Course in Capital Markets, Securities Laws, Insider Trading and SEBI Litigation

Certificate Course in Labour, Employment and Industrial Laws for HR Managers