Capital market regulator Sebi has said it intends to penalise any person who acts on information received from an insider. In a major change proposed to its Insider Trading Regulations, 2002, Sebi said, ?It is proposed that the language of the regulations may be improved by way of clarification to specifically penalise? a receiver of insider trading tips or information.
Sebi said though its regulations prohibit persons from passing on insider information, there seems to be no liability for those who receive such improper tip-offs. There is only a vague prohibition against the procurement of insider information.
In order to make suitable modifications to its Insider Trading Regulations, Sebi has posted a consultative paper on which it has sought comments from the public before March 27. Comments thus received–together with those received on short-swing profit regulations?would be considered by the regulator to effect suitable amendments.
Sebi said that there was need to move towards a principle-based approach to regulations, rather than a rule-based approach, particularly in matters of corporate governance. However, Sebi further said criminal prosecution for process-based violations is inappropriate. It has proposed to delete criminal penalties attached to corporate governance measures, while fines and other directions may continue.
Insiders need to disclose their purchases of company stock under provisions of not only Insider Trading Regulations, but also under the Sebi (SAST) Regulations. Sebi has suggested that purchase disclosures made under either regulation (with the same or higher level of disclosure) should be deemed acceptable under the other. Better harmonisation between the two regulations in terms of threshold limits has also been proposed.
Sebi has also suggested a removal of bonus and rights issues from the list of the trading window, as the management of a company would, in any case, create such a freeze where necessary.
Sebi said that since the amendments to its Insider Trading Regulations in 2002, there had been new learning in terms of the way regulations had played out in the market. Key amendments were brought about in processes that would reduce the possibility of insider trading by means of an institutionalised methodology.
