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unpublished price-sensitive information of the company, or has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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