Prohibition by company to purchase shares by employee

Hello Sir/ Maam, 

A listed company is one whose shares can be traded on a stock exchange. The company takes out an Initial Public Offering(IPO) through which it sells its shares to the public and gets capital in return. ... BSE is a stock exchange that lists over 600 companies.  

Such probations are made on the employees as it is considered as illegal. This is also called as "insider- tradding 

Insider trading is the trading of a public company’s stock or other securities by indiviuals with access to non-public information about the company.

An “insider” is a any person who possesses at least one of the following:

1. access to valuable non-public information about a company ( this makes a company’s directors and high level executives insiders).
2. ownership of stock that equals more than 10% of a firm’s equity .

Say you are an employee of Apple and the company is about to make a public announncement of a stock split. The ‘inside news’ , not yet made public, was somehow leaked to various employees and these individuals took action by buying AAPL shares because they know somehow, AAPL stock will get pushed up upon announcement of the stock split, that is considered ‘insider trading’.

They traded the company’s stock based on news not yet available to the public. It is illegal to do that and when convicted, the person may end up with a heavy fine or even land up in jail if the amount involved is very large.

However, in normal circumstances when no price-sensitive information or announcement that may affect the company’s stock price is made, an employee is free to buy and sell the shares of their own company or any other listed company without fear. It is totally legal.

You are ‘on par’ with the public and do not have special advantages except the research you have done on the company which is also freely available to the public. And hence the listed companies do not allow thier empolyees to buy the shares of the company which they work in.

I hope this was helpful and answered your query.

regards

Varnita Ojha