Revamp of insider-trading rules runs into opposition

Sebi is said to have been flooded with feedback, objections to revised norms

It has been six months since the Securities and Exchange Board of India (Sebi) invited public comments on the insider-trading draft regulations.

People said the watchdog was struggling to finalise these as the discussion paper had met opposition from market participants.

“The regulator is working on incorporating all suggestions by industry. This is a big task,” said a person.

Sebi had formed a panel on revamping the regulations in March last year to replace a regime that is two decades old.

Led by former judge N K Sodhi, it filed the draft regulations to the regulator on December 7. These were later made public.

The guidelines included public servants, government officials and ministers in the ambit of insiders.

Sandeep Parekh of Finsec Law Advisors said one could not be charged as an insider with mere possession of unpublished price-sensitive information (UPSI).

There was also the suggestion the definition of connected persons be linked to the duty they were performing and their relationship with the company.

“A director has a fiduciary duty. Such an insider is supposed to put the interest of the shareholder ahead of their own interest,” said Parekh, former executive director, Sebi.

The regulator is mulling widening the ambit of defence available to those accused of insider trading, according to a source.

It is likely that Sebi, while listing out defences, may grant exemptions from the applicability of regulations on a case-to-case basis. This aspect was missing from the draft regulations given by the panel.  

Sebi is also likely to subject due-diligence activity of companies to reasonable safeguards yet to be finalised.

An email to the regulator did not get a reply till the time of going to press.