Question

1. Explain the difference between Insider Trading based upon a tipper/tippee theory and a
misappropriation theory and give on example of each?

2. Explain the legal concept of a bailment and give one example of a bailment using proper
terminology

Answer 1

ANS 1. The concept of insider trading is different in both the theories. Talking about the tipper/tippee or better known as classical theory, insider trading relates to corporate insiders only. The theory says that the inside employees hold a fiduciary position so they cannot engage in corporate buying or selling of securities using material non-public information. It differs from misappropriation theory in the sense that it donot include outsiders under this provision whereas, under misappropriation theory,outsiders also holds the fiduciary duty towards the information and cannot use the material non-public information to trade. An example of this can be: X, an officer of a company says to C, the broker of the company that next quarter the prices of our stocks will rise and he would get an increase in pay of 50% so,they should not sell stocks now. But C sells the stocks to another person. In this case C is an insider and have used material non-public information to trade. This is the case of insider trading as per classical theory. However, if C would have been a friend of X rather than a broker then the case would come under misappropriation theory.

ANS 2. The term bailment springs from a French word deliverer which suggests "to deliver". In legal terms bailment may be a contract underneath that a property (bailment) is placed under the custody of another person(bailee) by the owner(bailor) for such a period with an express or implied promise by the bailee to come back and give the property after the aim was fully taken.

The three components that are vital for the execution of bailment are :

1. the delivery of the property to the bailee;
2. the acceptance of the possession by the bailee and;
3. the consideration i.e. exchange of something valuable.

EXAMPLE: A boy named Z met with an accident while driving a car. His car got damaged. So, he went to garage to get his car repaired. The mechanic took the car to his custody and gives him back after one day. Z pays him 50$. So, in this case, Z is the bailor, who has delivered the bailment i.e. his car to the bailee i.e. mechanic who accepted the possession for a temporary period in consideration of 50$.