Govt staff, judges to come under purview of insider trading norms

ENS Economic Bureau Posted online: Thursday, Dec 12, 2013 at 0000 hrs
New Delhi : Government employees and sitting judges could also soon be hauled up by the market regulator under the new insider trading norms put up for public comments on Wednesday. The norms have been proposed by a committee formed by Sebi under the chairmanship of Justice NK Sodhi in March this year.

Insider trading or the practice of people trading in scrips based on information gleaned from their connections with companies has been the biggest problem plaguing the Indian stock markets. Securities and Exchange Board of India (Sebi) chief UK Sinha had taken up a thorough review of the regulations that have not been changed for two decades despite reforms in almost all other aspects of stock trading.

The draft regulations plan to treat public servants and people holding statutory positions — in possession of unpublished price sensitive information (UPSI) — on the same line as it treats connected persons prohibiting them from trading in the shares.

“A new feature of the proposed regulations is that of treating public servants and persons holding statutory positions that are reasonably expected to have access to UPSI as — connected persons — and thereby prohibit them from trading when in possession of UPSI,” the report notes. “The restrictions on trading that would apply to connected persons would apply to such persons as well.”

In another major recommendation the committee has proposed to broaden the definition of ‘insider’ and said that it will presume immediate relatives (who are either financially dependent or consult an insider when trading in securities) as connected persons. It also stated that any person in possession of UPSI would be considered an insider.

The draft regulations will be up for public comments till December 31, 2013.

The committee, however, moved to provide a window to the “insiders” (perpetually in possession of price sensitive information) to trade in their securities though pre-scheduled “trading plan”. However, they will have to disclose their trading plans for at least twelve months to the stock exchanges and will not be allowed to execute those before six months of such disclosure. The trading plan will have to either set out the value of the trade or the number of securities to be traded. “Insiders were often scared of trading and this exemption provides them with the window to go for a planned trade,” said Sandeep Parekh, of FinSec Law Advisors.

The committee though fell short of providing absolute immunity to the trading plan from investigation and said, “(it) would not provide absolute immunity from investigation into whether such manipulation of timing had been used to circumvent the prohibition on violative insider trading,” said the report.

Experts say that even shares earned under the employee stock ownership plan (ESOP) will have to be a part of the trading plan. “Sale of shares earned by insiders under the ESOP schemes should also be a part of the trading plan,” said Parekh.

The committee has proposed to prohibit insiders from communicating or allowing access to UPSI unless required for discharge of duties or for compliance with law. While it has proposed to clarify on what constitutes UPSI, it has also provided a list of types of information that may be regarded as price sensitive.