Public servants having access to corporate-related unpublished price-sensitive information (UPSI) would no longer be able to trade in securities of such companies, markets regulator Sebi has stipulated.
UPSI essentially relates to information that is not generally available and which on becoming public would materially affect the price of securities to which it relates.
A Sebi-instituted high-level committee, headed by former Kerala and Karnataka chief justice N K Sodhi, reviewed the two-decade-old Prohibition of Insider Trading (PIT) regulations, and on Wednesday proposed stricter norms to curb growing incidence of insider trading.
As per Sebi’s annual report, the regulator investigated 24 such cases last fiscal and 28 the previous fiscal, a contrast to an average of 11-12 cases in the previous ten years.
Under the new rules, the definition of “insider” has been broadened and would now include all persons having access to UPSI – whether employed directly or in any contractual or fiduciary relationship with the firm concerned. And that includes public servants.
Even persons in frequent communication with the officers of a company and their immediate relatives in certain cases would now come under the purview of insider trading.
This means, all those involved in formulating policies which in turn can have material impact on the share price of listed securities, would now be restricted from trading. Public servants may include a judge on some complex cases, policymakers who set prices of natural resources, even those deciding on foreign investment limits, so on.
The proposed regulations, however, have now made a provision for certain insiders having access to price-sensitive information throughout the year to formulate a trading plan and execute it at least six months after the plan is publicly disclosed.
This will help those in senior management and those who are promoters to trade easily as, otherwise, they would be incapable of trading in securities throughout the year.
The new regulations also provide for stricter disclosure obligations where in trades by promoters, employees, directors and their immediate relatives are required to be disclosed to the company.
The company concerned is required to keep record of all holdings by all employees, but is entitled to require third-party connected persons to disclose their trading and holdings in securities.