Sebi panel asks it to 'name and shame' entities involved in insider trading

Sebi is expected to announce new norms on insider trading soon

The Indian securities market regulator should make use of heavy penalties and a ‘name and shame’ policy to tackle the menace of insider trading. The Securities and Exchange Board of India (Sebi) has been so recommended by its International Advisory Board (IAB).

IAB, which advises Sebi on organisational changes based on international trends, met in Bangalore on Monday and Tuesday.

At present, banks do use a ‘name and shame’ tactic against borrowers who default, by publishing photographs and other details in newspapers and at notice boards of their branches. Insider trading refers to purchase or sale of a company’s shares by its ‘insiders’, on the basis of information not available to public shareholders. An insider can be a promoter senior management, directors and even an entity not connected with the company but with such information.

“IAB suggested that Sebi should publicise major insider trading cases in a separate section on the Sebi website for easier access; may have provisions to compensate victims, if any, of insider trading offences; and should encourage an effective whistle-blowing framework in the securities market by ensuring adequate legal protection,” Sebi stated on Tuesday.

The market regulator is soon expected to announce new norms on insider trading after an experts’ panel it had set up gave its recommendations last week.

IAB also discussed the framework proposed by Sebi on Real Estate Investment Trusts (REITs). It suggested the REIT framework have an ‘internationally competitive tax regime’, by giving it a pass-through status.

“Gradual expansion of REITs to include retail investments and a separate framework for infrastructure investment trusts,” Sebi stated.

The advisory board also deliberated on Sebi’s new consent mechanism framework, where serious violations such as insider trading and front running have been excluded.

“IAB, after deliberating on the formula-based determination of consent mechanism, suggested judgmental variations in consent amount on a case to case basis, so as to make it effectively deterrent in nature,” the Sebi statement added.

IAB noted the concerns for market infrastructure due to cyber security issues and the need to strengthen internal systems.

The advisory body also made observations on the economic slowdown as “...more attributable to internal factors than external. It was further observed that share of manufacturing output in Indian GDP has been stagnant despite faster growth in Indian economy in the last two decades, a phenomenon different from other growing economies like China, Korea, Taiwan,” said Sebi.