The correct answer is It distorts the level-playing field between investors in the stock market and makes the markets susceptible to heavy speculation.

• Insider trading is the trading of a public company‘s stock or other securities (such as bonds or stock options) by individuals with access to non-public information about the company.
• In various countries, insider trading based on inside information is illegal.
• This is because it is seen as unfair to other investors who do not have access to the information.

• The Securities and Exchange Board of India (SEBI) has prescribed internal controls on sharing of information.
• It has decided to hold company promoters, irrespective of their shareholding status, responsible for violation of insider trading norms if they possess unpublished price-sensitive information (UPSI) regarding the company without any ‘legitimate’ purpose.
• SEBI has specified that the term “legitimate purpose” will include sharing of the UPSI in the ordinary course of business by an insider with partners, collaborators, lenders, customers, suppliers, merchant bankers, legal advisors, auditors, insolvency professionals or other advisors or consultants, provided that such sharing has not been carried out to evade or circumvent the prohibitions of these regulations.
• Simply put, a promoter who is not an advisor in official capacity or does not hold any position on the board will not be considered a person having “legitimate purpose” to hold the UPSI.
• It has recommended that the board of directors shall ensure that a structured digital database is maintained containing the names of such persons or entities, as the case may be, with whom the information is shared.

• SEBI’s decision is based on the recommendations of the TK Viswanathan committee on fair market conduct.