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SEBI Tightens Insider Trading Norms
Dec 09, 2014

Revamping its nearly two-decade old regulations on insider trading, SEBI approved stricter norms, including new definition for connected people, to prevent the menace. Apart from clarity on concepts and definitions, the new regulations strengthen legal and enforcement framework while also ensuring that legitimate business transactions are not impacted.

The new regulations strengthen the legal and enforcement framework, align Indian regime with international practices, provide clarity with respect to the definitions and concepts, and facilitate legitimate business transactions.

SEBI has expanded the definition of Insider to include persons connected on the basis of being in any contractual, fiduciary or employment relationship that allows such people access to Unpublished Price Sensitive Information (UPSI).

Under the new framework, SEBI has defined a connected person in the context of insider trading activities. A connected person would be someone who is or has during the past six months prior to the concerned act has been associated with a company, directly or indirectly. Besides, immediate relatives of connected persons would also come under the same category unless they prove that they were not privy to unpublished price sensitive information.

The onus of establishing that they were not in possession of UPSI would be with the connected persons. The regulator has decided to remove the requirement for repeated disclosures and ease compliance burden.

To protect the interest of investors, companies would be now mandatorily be required to disclose UPSI at least two days prior to trading in case of permitted communication of such information. Besides, communication of such information is prohibited except in instances of legitimate purposes or discharge of legal obligations.

Insider trading refers to dealing in securities after having access to unpublished price sensitive information and such practices provide unfair advantage to the entity who has privy to such details.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 come across various instances of insider trading activities not just at small companies but also at larger ones.

To provide clarity, generally available information has been defined as information that is accessible to public on a non-discriminatory platform such as stock exchange. Meanwhile, insiders who are liable to possess UPSI allround the year would have the option to formulate pre-scheduled trading plans.

Among others, principle-based Code of Fair Disclosure and Code of Conduct has been prescribed. The latest norms have been prepared after taking into consideration recommendations of Sodhi Panel and suggestions from various other quarters. After extensive deliberations, a panel headed by former Justice N.K. Sodhi had submitted its report on insider trading norms in December 2013.

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