Employee Trading Approvals – Why It’s Non-Negotiable 


At the convergence of corporate governance and financial markets, we dive into a critical aspect—the alignment of employee trading policies with legal and regulatory frameworks. This article sheds light on the various aspects of employee trading compliance, emphasizing the complex risks and consequences, especially within the framework of fines and penalties. 

Employee Trading Impact on Corporate Integrity: 

Employee trading compliance is more than guidelines—it’s crucial for fair practices, protecting confidential information, and maintaining a level playing field.  

Preserving corporate integrity is vital. Deviating employee trades compromise trust among stakeholders, making it not only a moral obligation but a strategic necessity for sustained relationships and future opportunities. 

Understanding the Need for Employee Trading Compliance: 

Employees submit trading requests to prevent conflicts, insider trading, and unethical activities. These requests should be submitted well in advance, providing compliance teams time for review. Details like security type, quantity, and proposed date are required, along with disclosure of existing holdings. Trading without approval can lead to serious consequences, including disciplinary actions, termination, legal issues, and damage to professional reputation. Compliance is vital for market integrity, regulatory adherence, and safeguarding individuals and organizations from unauthorized or unethical trading risks.  

Employee Trading approvals balance sensitive information at an enterprise-wide level with the investment needs of the individual employees so that both can retain their rights and obligations in a mutually agreeable manner. 

Insider Trading and SEBI – Navigating Legal and Regulatory Labyrinths:  

Financial markets operate within a complex regulatory framework designed to ensure fairness. Employee trading compliance serves as a navigational guide through these legal labyrinths, shielding the organization from the dire consequences of regulatory non-compliance. Companies must view compliance as a proactive strategy rather than a reactive obligation to navigate these intricate legal landscapes successfully. 

The Risks of Non-Compliance: 

The importance of Employee Trading Compliance at an organizational and individual level can be best judged by the risks that arise from non-compliance. 

Reputational Damage:  

Non-compliance with company policies and legal regulations can inflict severe damage on an organisation’s reputation. Employees play a big role in ensuring compliance. Stakeholders, including clients, investors, and employees, place immense value on ethical practices. Instances of non-compliance can erode trust and tarnish the carefully cultivated image of the company. A few examples of instances that had long lasting impact on the parties involved.  

Impact can be wide-ranging, from financial penalties on the corporation, individuals, directors or compliance officers, investigations that divert focus from the business, impact on share prices, withholding of regulatory licenses and permissioning, loss of financial confidence or ratings and increase in cost of funds amongst many others.  

It can be argued that Insider Trading is only one of many areas of corporate governance. However, the complexity of the financial markets tends to lead to impact on all other areas as well. Take the following examples; 

Tata Group and Nira Radia Tapes (2010): 

The leakage of Nira Radia tapes, which contained conversations involving corporate lobbyist Nira Radia and influential individuals, including some from the Tata Group, led to significant reputational damage for Tata with wide-ranging impact.  

Infosys Whistleblower Allegations (2019): 

Infosys, a leading IT services company, faced whistleblower allegations in 2019, accusing the company of unethical accounting practices to boost short-term revenue and profit. While arising from accounting standards and practices, the incident resulted in wide-ranging reputational damage for Infosys, as stakeholders raised concerns about corporate governance and adherence to ethical standards. 

ICICI Bank-Videocon Loan Controversy (2018): 

ICICI Bank faced controversy over its loans to the Videocon group, with allegations of impropriety and conflict of interest involving the bank’s CEO, Chanda Kochhar. While the incident was focussed on questions about compliance with lending norms, it ultimately extended to overall corporate governance, and ethical standards, impacting the bank’s reputation. 

Legal and Financial Consequences:  

The legal ramifications of non-compliance extend significantly. Regulatory bodies like the Securities and Exchange Board of India (SEBI) have the authority to impose fines and penalties for violations of trading regulations, exerting substantial influence in maintaining market integrity.  

On the financial front, the most tangible outcome of non-compliance is the imposition of fines and penalties, calculated by regulatory bodies based on the severity and impact of the violation. These consequences can range from substantial monetary amounts to potentially crippling figures. 

Operational Disruption:  

Non-compliance often leads to operational disruptions as companies are forced to divert resources to address regulatory issues. Legal battles, investigations, and the implementation of corrective measures can strain organisational resources and hinder day-to-day operations. 

In conclusion, safeguarding the integrity of employee trades within the framework of company policies and legal regulations is paramount. As businesses navigate the intricate corporate landscape, prioritizing compliance isn’t a mere checkbox; it’s a commitment to ethical conduct, integrity, and preserving trust within the broader marketplace.  

It is critical to ensure that an investment is made into software applications designed with intelligent controls built-in. Applications like Affinis(ETT) for Employee Trading & Tracking provide a streamlined solution to ensure effortless adherence to Insider Trading regulations, enabling entities to maintain their regulatory standing at the tiniest fraction of the amounts raised from the public markets in the first place, in the past or the future.