I’ve been a trader for years.
I was a Senior Trader at a well-respected investment firm, and I had worked hard to get there.
I had spent countless hours educating myself on the markets, analyzing data, and studying trends. I knew the ins and outs of the trading world like the back of my hand.
While I made some great trades myself, I missed out on some big opportunities because of employee trading prohibitions, and I didn’t take failures or losses particularly well. The sense of powerlessness I felt always got to me. I mean, I worked hard, spent hours researching and analyzing market trends and companies and yet, I was never able to capitalize on my knowledge when some information came to me to support a view I already had. My compliance officer said I was free to have acted on it before I got any such information. He called it Unpublished Price Sensitive Information – UPSI.
It was frustrating!
Insider Trading regulations were unfair and illogical but I had to admit that they were a serious threat to me. But I did feel that I could count on my expertise and not get caught.
One day, a client asked us about how to lock in an exchange rate an upcoming deal with a large inflow. Apparently, it was a substantial stake sale to a foreign investor with a public offer component. That was something most people didn’t know. I guess my compliance officer calls that UPSI. Unpublished Price Sensitive Information! Indeed… but isn’t that where the value was?
I quickly liquidated several FDs and bought as many of the scrips as I could possibly afford, three and a half months later, I sold about 15000 shares at an average profit of Rs 540 a share, a clean profit of Rs 81,00,000/-. That was almost my annual salary for barely any work.
A few months later, I was speaking a conference in New York City at a client event when I overheard a conversation between two executives from my client firm. They were discussing a major recall on one of their products. I couldn’t believe my luck. The silly regulatory expectation was for me to log this into a Structured Digital Database and separately report to my Compliance Officer. No way. I recalled the easy money I had made and decided to go all in. I leveraged myself significantly and short sold on this position. This was, after all, the opportunity I had been waiting for. Four months later and I was richer by Rs 24 Million. For a long time, I felt like I was on top of the world. I thanked my stars that I was in the right place at the right time. I finally made the trade of a lifetime, and it was all worth the risk.
As I walked into my office one morning, a few weeks after this trade. I was generally feeling confident. But then, seemingly out of nowhere, I received a call from law enforcement based on a trigger raised by the supervisory wing of the exchange and the regulator. Soon I found that the entire history of events as they had transpired, including transcriptions and witness testimony was already prepared against me.
Saying that I was shocked would be an understatement. How could they know? I had been so careful and calculated! But the evidence was right in front of them. They had traced the trade back to me, even up to where I may have overheard the conversation! The investigation lasted for two months. I had to go through countless interviews and meetings with lawyers and regulators. My passport was surrendered. It was a nightmare of sleepless nights and worry.
My past trades were brought into scrutiny and the earlier trade where I had netted more than INR 8 Million also came under review.
In the end, I was found guilty of non-compliance with Insider Trading regulations on multiple counts. I lost my job, was blacklisted from the market and was fined INR 40 Million. My reputation in the industry was completely tarnished as was my future. And to add to it all, I was sentenced to 180 days imprisonment with no possibility of paroled before 90 days.
Looking back, I recall thinking how silly it was for someone to expect me to log that UPSI into the Structured Digital Database and some of the other compliances. I had justified to myself that I was just playing the game. I told myself I was far too good at this and convinced myself that the chances of being caught were little to none.
Well…
This is a fictionalized account written to demonstrate the connectivity between individual motivations and thought processes and insider trading regulations. Insider Trading regulations may appear to be abstract notions, the real world implications are severe and significant.
