Sebi recently proposed new amendments around insider trading in its latest paper, released on July 29. While this is not the first time the market watchdog has hit hard on behind-the-scene trading activities, the new proposals introduced by Sebi widen the scope to curb illegal trading
Sebi has yet again introduced new amendments to insider trading regulations. The market watchdog released a paper on July 29 to broaden the scope of curbing insider trading. From expanding the definition of 'connected person' to enhancing the confidentiality of sensitive information, the new measures are aimed at protecting investors from behind-the-scene trading activities.
These new amendments were made to a consultation paper, that was originally released by Sebi in July 2022. This was majorly done to bring the buying and selling of mutual fund units under insider trading rules. Multiple entities and big names have faced the wrath of the market watchdog this year, for their potential hands in insider trading.
As markets continue to attract investors of every asset class, the fancy valuations of the markets have caught on illegal behind-the-scene trading activities.
What is Insider trading?
Insider trading often refers to the buying or selling of a listed company's shares by someone who has non-public, material information about a stock beforehand. This information could significantly help the 'insider' in getting a monetary edge at hand and impact the stock's price once the information becomes publicly available.
Sometimes, people might also share this information or UPSI (unpublished price-sensitive information) with a 'connected' person or simply someone in relation.
Earlier this year, the market watchdog slapped a market ban on 5 individuals, connected through family relations, in a front-running case. One of the people involved in the illegal trade was an employee of the state-owned insurance firm LIC.
While front running is a bit different from insider trading, both activities involve exploiting information that one might have in advance.
Keeping in view this, Sebi has made proposals in the paper to widen the definition of 'relative' under insider trading
What is the new proposal?
“It has been observed that certain categories of persons who are not covered in the scope of the definition of ‘connected persons’ as per existing regulations, may also be in a position to have access to UPSI from ‘connected persons’ to a company," the paper read.
The regulator has proposed expanding the definition of "immediate relative" to include a broader range of connected individuals.
In addition to the general definition (which includes blood relations), the following categories will also be considered under the "connected person" category, unless proven otherwise:
1. Immediate relatives of the connected persons
2. A holding company, associate company or subsidiary company.
3. An intermediary or an employee or director of such an intermediary.
4. An investment company, trustee company, or asset management company, or an employee or director of these companies.
5. Any firm, trust, Hindu undivided family, company, or association where a director of the company, his immediate relative, or the company's banker holds more than 10 per cent of the shares or interest.
The market regulator has added other categories as well, which can be checked on the official website.
"Such deemed connected persons, owing to their proximity and close relationship with the connected persons, are considered to be in such a position where they can potentially indulge in insider trading,” the paper further read.