The term unpublished price sensitive information has been defined in the guidelines and this definition is more or less on the lines of the regulations.

A mention here is necessary of the inadequacy of this term. As discussed earlier, it includes any information that is material and unpublished and that is likely to materially affect the price of the shares of the company.

While this definition is quite easy to understand, it may be impossible to apply it except intuitively. There are many practical difficulties also.

What is unpublished? Hence, how can information be said to have been published?

For example, if an automobile company reports its production figures to its association, can such information be said to have been made public? Or, are there prescribed methods by which such information should be published?

What information is not material? What information can be said to be likely to materially affect the price of the shares of the company?

It may be noted here that in most cases the acts of insider trading are discovered later when the effect on the price of the shares is already established. In such cases, the authorities have the benefit of hindsight.

But, when the information was unpublished, how does one really decide whether such information can materially affect the price of the shares of the company?

There is a thin line between information and expectations or plans. For example, a company may be planning to merge. Till such proposal is in its infancy, no one knows what will happen and the real reasons for keeping the transaction secrets are not just to comply with laws but to avoid embarrassment and avoid possible violation of other statutes if the information is revealed in advance, but also for commercial considerations.

In fact, revealing such information in advance may later be held to be market manipulation if it is not properly published and if, as in the earlier example, the merger is finally called off. But, if such merger actually comes into effect and the market price of the shares change substantially, the authorities are likely to point the finger on those persons who took the chance of trading in the shares of the company on the basis of such information. This is not to say that such acts should be permitted. But the dilemma and difficulties should be understood properly.

Though the thrust of the proposed guidelines is quite clear and is clearly a step in the right direction, there are many other areas where details will matter. For example, how will the guidelines be enforced? What jurisdiction, if any, does Sebi have over entities that are not required to be registered with Sebi?

What will be the mechanism to ensure that all such entities comply with these guidelines. One way is to require them to file annual compliance reports with Sebi. This has the advantage of obtaining written reports on record but has the disadvantage of Sebi being flooded with paper.

Alternatively, there can be exception reporting where entities not complying with such reports should be required to report. Listed companies, in particular, may be required to report such compliance as part of the directors' report.

Attention also needs to be given to the peculiarities of the Indian context where promoters hold a substantial percentage of the share capital of listed companies in sharp contrast to the West.

In the West, for example, it has been reported that about 80% of the capitalof listed companies is held by institutional investors and hence the considerations there are more focussed on insider trading by such bodies.

In India too, the investments by such institutional investors is on the rise but still there are sharp contrasts. Thus, insider trading by promoters should also be an area of focus.

Presently, the guidelines focus on employees and "directors" only. The guidelines and even the regulations are more concerned with the misuse of unpublished information. Attention also needs to be given to two other aspects.

First is timely revealing of material information. For example, it may be worthwhile revealing accurate information about the progress of an important project giving clearly the variables rather than waiting till the last stage after which the success or failure is only revealed.

Another example is whether the company is on the brink of insolvency. Such information, if revealed at the very last stage, has also its consequences.

Incidentally, the guidelines do lay some stress, though without going into more detail, over timely disclosure of information.

The other aspect is revealing information too early whereby there are wild reactions in the markets. Considering the volatility of the markets, half baked information may be wrongly interpreted and later there may be allegations that the attempt was to mislead the markets.

Sebi has notified separately regulations relating to manipulations and unfair practices and perhaps it may be worth merging these regulations with the regulations and guidelines relating to insider trading so that there isconsistency. To conclude, corporates, market intermediaries and professional firms will now have to take the issue of control of insider trading quite seriously and all entities that are associated with the capital markets will have to take action in relation to the guidelines.