A high-level committee set up to suggest ways to curb insider trading and reform norms relating to such malpractices has proposed that public servants in possession of price-sensitive information, be brought under Securities and Exchange Board of India’s (Sebi) purview. The panel also puts the onus on insiders to prove they have not breached any law while broadening the definition of parties who could be considered to be insiders.
The 15-member committee’s report, released by capital market regulator Sebi, on Wednesday, also recommends that even “connected persons” or any individual in possession of unpublished price-sensitive information (UPSI) be considered as an “insider”. A “connected person” is one who is in possession of UPSI and is associated with the trade concerned at the time of occurrence or during the six months prior to the trade concerned, in any capacity.
The panel sad all trades by the promoters, employees, directors and their immediate relatives (which would cover close relatives who are either financially dependent or consult the insider in connection with their trading) would need to be disclosed and recorded by the company. These new norms will also apply to mutual funds and trusts issuing securities or schemes that get listed on stock exchanges.
“Simply put, the proposed regulations entail a prohibition on trading by insiders in securities when in possession of UPSI, thus obtaining an unfair advantage,” the report stated.
This is the first time that public servants in possession of price-sensitive information will be also considered as a connected party.
The definition of the term “connected person” has been changed to “explicitly include public servants who handle UPSI relating to listed companies,” said Sebi in its 74 page report.
Sandeep Parekh, founder, Finsec Law Advisors observed that bringing public servants under the purview of insider trading norms is a good initiative as government officials do have access to a lot of insider information. “In fact, the definition will also bring Sebi officials, who may be in possession of sensitive company information, under its purview,” Parekh said.
Senior corporate lawyer Baljit Singh Kalla pointed out that government officials are privy to confidential information on deals. “While the public knows that decisions on deals like Jet-Etihad are pending, officials exactly know when these would be taken. Likewise, including the family members of the senior mangement is also welcome,” Kalla said.
Insider trading refers to “buying” or “selling” of securities of a listed entity by individuals with access to