Sebi may seek your live-in partner's details to bust insider trading cases

A Sebi report on insider trading norms proposes people disclose details of those sharing same residential address to their companies

As a result of a new proposal on insider trading norms, people may be required to disclose details of their live-in partner to their company.

A report on dealing with fair market practice has proposed ‘disclosure of close personal relationships’ along with other measures to make it easier to crack such cases.

“… in order to facilitate investigation, the Committee has recommended mandating disclosures by designated persons of persons residing at the same address for more than one year,” according to a recent Securities and Exchange Board of India (Sebi) report of the committee on fair market conduct chaired by T K Viswanathan .

Insider trading is when people look to make illegal profits by trading in shares on the basis of non-public information about a company. However, bringing such instances to book has been challenging because of the difficulty in establishing a link between the people who had access to such information, and those trading on it, according to the report. It has therefore proposed the that persons with access to such information make a disclosure of the names of immediate relatives, persons with whom they share a material or financial relationship, as well as those sharing the same address.  

“This is somewhat excessive and a certain breach of privacy. When combined with phone-tapping powers, this is a sure recipe for excess power without any accountability,” said Sandeep Parekh, founder of Finsec Law Advisors, and former Sebi executive director. The committee report had also recommended phone-tapping powers for the regulator.

Illustration: Ajay Mohanty

“….A blanket attempt to extend the boundary of insider trading parameters to persons living in the same home needs to be thought through,” said Sumit Agrawal, Founder, RegStreet Law Advisors & ex-Sebi official.

Others sharing the same address could include spouses, children, other relatives, resident domestic help in addition to live-in relationships. The company is required to maintain the information in a searchable electronic format which can be shared with Sebi when required for investigations.

A developed market like the United States of America requires such disclosures only when a case is being investigated, and not otherwise.

“In US, Rule 10b5 enumerates a non-exclusive list of non-business relationships under which a sufficient duty of trust or confidence will exist and automatically a live-in or a romantic relationship is not included but can be asked in a specific investigation by the regulator,” said Agrawal.

This is despite at least one specific instance where a romantic live-in partner’s inside information was used to make illegal gains. Toby Scammell made insider bets on Walt Disney Company purchasing Marvel Entertainment for a windfall gain, based on information he gleaned from his live-in girlfriend who happened to be working on the deal .

The move comes even as debates on privacy have gained momentum in recent times. The Supreme Court ruled privacy to be a fundamental right in an August 2017 judgment. Another ruling over privacy in relation to the governments unique identification project-Aadhaar-is still pending.

One lawyer also pointed out that such a database would be especially intrusive for people in same-sex relationships.

There is evidence of the Lesbian, Gay, Bisexual and Transgender (LGBT) community in India experiencing discrimination in terms of employment, health care, education and access to social services, according to a October 2014 World Bank report entitled ‘The Economic Cost of Stigma and the Exclusion of LGBT People: A Case Study of India’ authored by  M V Lee Badgett, professor of economics at the University  of Massachusetts Amherst, Williams Institute.

Mandatory disclosure may reveal such relationships as an ‘unintended consequence,’ the lawyer said.

Shriram Subramanian, founder and managing director of proxy advisor InGovern Research Services suggested that rather than additional regulation, better enforcement through prosecution of high-profile cases of insider trading such as that of Rajat Gupta in America, acts as a better deterrent.

“In the US…there is fear of enforcement,” he said.

The regulator did not respond to an email seeking comment.