Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis – II - Question Paper

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8. Insider trading is illegal in India with punishments ranging from hefty fines to jail terms. According to SEBI regulations, a person involved in insider trading can be penalized for 25 crores or 3 times the profit made out of insider trading whichever is higher. Securities & Exchange Board of India (SEBI) follows a standard investigation procedure for cracking down the insider trading. SEBI watches all market movements and captures any unusual movements or deviation in prices and quantities. SEBI also watches Employees, including Directors, in possession of any unpublished price sensitive information, pertaining to the Company, and their involvement in the transactions related to the shares As these persons shall not:
buy/sell securities of the Company, either on their own behalf or on behalf of any other person or Communicate, counsel or procure any unpublished price sensitive info to / from any person. But inspite of this insider trading is still on. This is because; it is not easy to nail an insider and it is notoriously difficult to pin down because much more data is needed to be collated to come close to proving that. Insider trading can rarely be proven.

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Caselet 2

9. Support and resistance are the key point where the forces of demand and supply convene. Usually supply drives the price down and demand increases the price. Thus excess supply is related with bear signal and excess demand is a signal of bullishness. When supply and demand are equal, prices will move sideways. The support and resistance level is an example of the supply and demand theory, where the supply explains the number of shares the seller is willing to provide and demand explains the number of shares a buyer is willing to purchase. Thus at higher prices more investor are willing to sell and number of seller increases in the expectation of selling at higher prices, on the other hand the number of buyers reduces as only few investors are willing to buy at higher prices. A breakout above a resistance level is evidence of an upward shift in the demand line as more buyers become willing to buy at higher prices. Similarly, the failure of a support level indicates that the supply line has shifted downward. Thus bull pushes prices higher and bear lowers the prices and the direction of prices will show who had truly won the battle. Bull will come in the picture at the support level and prevent the price from falling lower. On the opposite, bear will take control at resistance level and stop the price from rising higher. The trade will take place at the price where both bull and bear agree to do business and this indicates the harmony in the idea.

Earning:   Approval pending.