SEBI panel prescribes stricter norms on insider trading

• The Securities and Exchange Board of India(SEBI) panel, headed by former chief justice of India N. K. Sodhi, has suggested that trades by promoters, employees, directors and their immediate relatives would need to be disclosed internally to the company.
• The panel on insider trading also recommended that trades within a calendar quarter of a value beyond Rs. 10 lakh (or such other amount as the capital market regulator may specify) would be required to be disclosed to the stock exchanges.

Code of fair disclosure

• Every entity that has issued securities which are listed on a stock exchange or which are intended to be listed would be required to formulate and publish a code of fair disclosure governing disclosure of events and circumstances that would impact price discovery of its securities.
• The Committee has also suggested that each regulatory provision may be backed by a note on legislative intent.
• While enlarging the definition of “insider”, the term “connected person” has been defined more clearly and immediate relatives are presumed to be connected persons, with a right to rebut the presumption. The term “immediate relative” would cover close relatives who are either financially dependent or consult an insider in connection with trading in securities.

Clarity on UPSI

• Further the regulations would bring greater clarity on what constitutes“unpublished price sensitive information” (UPSI) by defining what constitutes “generally available information”, essentially, information to which non-discriminatory public access would be available. A list of types of information that may ordinarily be regarded as price sensitive information has also been provided.
• Insiders would be prohibited from communicating, providing or allowing access to UPSI unless required for discharge of duties or for compliance with law.
• Insiders, who are liable to possess UPSI all round the year, would have the option to formulate pre-scheduled trading plans. In such cases, the new UPSI that may come into their possession without having been with them when formulating the plan would not impede their ability to trade.
• The Committee suggested that every listed company and market intermediary is required to formulate a Code of Conduct to regulate, monitor and report trading in securities by its employees and other connected persons.
• Companies would be entitled to require third-party connected persons who are not employees to disclose their trading and holdings in securities of the company.