MUMBAI, Nov 9 (Business Standard): Two decades after they were first framed, the market regulator is all set to overhaul the insider trading norms, The Securities and Exchange Board of India (Sebi) is expected to approve the new norms in its board meeting on November 19.
Sources in the know of the developments said the new rules would be much more stringent than the regulations currently in place, but would not be as strict as those mentioned in the draft document circulated in July this year.
For example, in the definition of "connected persons", public servants may not be specifically mentioned as insiders. Also, disclosing due-diligence procedures by companies to stock exchanges will not be a part of the regulations.
"In the final guidelines, the markets regulator has taken into consideration the feedback received from various market intermediaries. Their concerned have been ironed out," the sources said.
The insider trading norms will define connected persons based on the duty they perform for company and the legal relation they have with the listed entity and its promoters.
In the draft regulations formulated by the insider trading committee led by Justice NK Sodhi, a connected person was defined as someone who is connected with the company in any capacity (including people who have had frequent communication with company officers) six months prior to the trade.
The draft regulations grabbed headlines by including public servants in the definition of connected persons. But in the final guidelines, public servants and ministers may not find a specific mention.
"If a public servant or media acts on any insider information they will be examined. However, there would not be any specific provision to deal with them," said a source.
In the draft regulations, any due-diligence that companies are engaged in needed to be declared to stock exchanges two days before any trading activity undertaken in the stock.
"Dealing with situations where there is no intent to conduct a mala fide transaction needs clarity. Just declaring due-diligence two days prior to the trade does not solve the problem and is not practical," said Raja Lahiri, Partner, Grant Thornton.
However, there is another section of market that believes that any form of price sensitive information should be available to all types of investors."Due-diligence aspect is the heart and soul of the regulations. Every investor has the right to access the information about a company whether positive or negative," said JN Gupta, CEO, SES proxy advisors.
Last year in December the Prohibition of Insider Trading (PIT) committee had submitted its report to the market regulator. Sebi later invited comments on the draft regulations. Till now the market had been operating under the PIT regulations of 1992.
Legal experts opine that persons who have a fiduciary duty to the shareholders are supposed to put interest of the shareholders ahead of their own interest and thus should be labelled as insiders.
