CAPITAL markets regulator Sebi has tightened its insider-trading norms
by broadening the definition of the term insider to include any person
who is and was connected with a company and is the recipient of price
sensitive information. The regulator has now amended its regulations to
prohibit trades by a designated insider within a short period of six
months. What this implies is that an insider cannot enter into an
opposing transaction within a period of six months. In other words, if
a company insider has acquired or been allotted shares of his own
company, he cannot sell shares of that company for the next six months
from the time of purchase or allotment.
The new stringent norms are aimed at curbing the misuse of price-sensitive information, especially by those working at senior positions in listed companies.
The new regulations, which have been notified, now define an insider as any person who is, or was, connected with the company, or is deemed to have been connected with the company. Further, an insider will also include a person who is reasonably expected to have access to unpublished price-sensitive information of the company, or has received, or has had access to such price-sensitive information. Dependants of all those who are defined as insiders will also now come under the ambit of regulations.
Under the new rules, there is an also an absolute prohibition on such persons from taking positions in derivative transactions in the shares of the company at any time. In the case of subscription to initial public offers (IPOs), a designated insider will have to hold their investments for a minimum period of 30 days.
Early this year, Sebi had proposed the introduction of short-swing profits generated through inside information. As a corporate governance measure, which aligns the interests of a company’s shareholders to that of the company’s insiders, it had proposed this additional regulation based on the practice prevalent in the US. Under the new regulations, Sebi will proceed against those violating the rules on the basis of its statute book rather than the earlier proposal, under which unjust gains made by an insider were to be surrendered to the company. In a bid to curb the abuse of privileged corporate information, Sebi had initially proposed that company insiders would have to return any profits made from the purchase and sale of company shares to the company, if both transactions occur within a six-month period.
Sebi has also brought dependants of designated insiders under the ambit of the new rules.
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