Market regulator issues stricter norms on class of individuals deemed to be insiders to limit illegal transactions in shares of listed companies
Market regulator Securities and Exchange Board of India (Sebi) notified a stricter set of insider trading norms on Thursday by widening the class of individuals deemed to be insiders in order to limit illegal transactions in shares of listed firms by the management personnel and persons connected.
Sebi has expanded the definition of insider by including persons connected on the basis of being in any contractual, fiduciary or employment relationship. Immediate relatives will also be considered insiders as will any person who has access unpublished price sensitive information (UPSI).
Directors and employees of a company as well as persons who may not seemingly occupy any position in a company but are in regular touch with the company and its officers will also come under the purview of Sebi’s new rules. Third-party connected persons must disclose holdings and trading in a company’s shares. Derivatives trading by directors and KMPs in securities of the company is prohibited.
Explaining the term UPSI, Sebi said it refers to any information not generally available and which could impact the price of the shares. In instances, where it is permissible to disclose, UPSI, it must be done at least two days prior to a trade.
Revamping the two-decade old regulations, Sebi attempts in bringing greater clarity on concepts and definitions put in place along with a stronger legal and enforcement framework for prevention of insider trading under the new set of norms.
The new norms will be called Sebi (Prohibition of Insider Trading) Regulations, 2015 and will be effective four months from the date of publication.
Insider trading refers to dealing in securities after having access to unpublished price sensitive information and such practices provide unfair advantage to the entity who has privy to such details.
Sebi has allowed the use of trading plans for insiders, especially those that are likely to have access to UPSI all the year round. The move is aligning regulations to those practiced in developed markets like the US.
Lalit Kumar Partner J Sagar Associates observed that it was good to see the regulator aligning Indian practices with those overseas and providing flexibility to insiders.
“Trading plan is a good defense to insider trading charges and allows a person to deal in securities market without violating the code, provided that plan is fully disclosed to the stock exchanges and strictly adhered to,” Kumar had told FE when Sebi had announced insider trading norms at its November 19 board meeting.
The tightening of norms assumes significance in the wake of Securities and Exchange Board of India (Sebi) coming across cases of insider trading at not just small companies, but at big corporates as well.