Market regulator Sebi today notified a stricter set of insider trading norms to check illicit transactions in shares of listed firms by management personnel and 'connected persons'.
The new norms, which will revamp nearly two-decade old regulations on insider trading and come into effect after four months, would also ensure that genuine trades are not impacted.
Besides, greater clarity on concepts and definitions has been put in place along with a stronger legal and enforcement framework for prevention of insider trading under the new set of norms, to be called the Sebi (Prohibition of Insider Trading) Regulations, 2015.
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.
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on the basis of being in any contractual, fiduciary or employment relationship that allows such people access to unpublished price sensitive information (UPSI).
Sebi said that a connected person is one who has a connection with the company that is expected to put him in possession of UPSI. The definition will also bring into its ambit persons who may not seemingly occupy any position in a company but are in regular touch with the company and its officers and are involved in the know of operations.
"It is intended to bring within its ambit those who would have access to or could access unpublished price sensitive information about any company or class of companies by virtue of any connection that would put them in possession of unpublished price sensitive information," Sebi said.
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relatives of connected persons would also come under the same category unless they prove that they were not privy to unpublished price sensitive information.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.
