Market regulator Sebi plans to widen net to curb insider trading

The Securities and Exchange Board of India (Sebi) on Monday proposed expanding the scope of regulations prohibiting insider trading to a wider group of people, including those connected to the officials in access to price-sensitive information.

The market regulator has suggested changes in the definition of “connected persons” and “relative” to address any gaps in the norms and possible violations.

Sebi noted that some persons who are not covered under the norms may also be in the possession of unpublished price-sensitive information (UPSI) due to their close links to the officials or key employees of a company who hold UPSI.

“Such deemed connected persons, owing to their proximity and close relationship with the connected persons, are considered to be in such a position where they can potentially indulge in insider trading,” it said in a consultation paper.

Sebi’s Prohibition of Insider Trading (PIT) Regulations define ‘insider’, ‘connected persons’, and ‘immediate relative’ as someone who can monitor their trades when the information has not been made public.

According to the proposed changes, Sebi plans to include relatives, a related firm or partner, people sharing the same household, a Hindu Undivided Family (HUF) where Karta (head) might be related to the connected person, among a slew of other additions to the “deemed connected persons’ definition”.

If any charge of insider trading is levelled against any such deemed connected person, they will have to prove that they were not in possession of the UPSI.

Sebi has also proposed to substitute ‘immediate relative’ with ‘relative’ to bring a wider group of family members like parents, siblings, spouse, siblings and parents of spouse, among others. The regulator said that in order to ensure there is no increase in compliance requirements, it will retain the definition of ‘immediate relative’.

“The requirement for disclosures of trades of ‘immediate relative’ by promoters, directors, designated persons under PIT Regulations will continue...The definition of ‘relative’ is being rationalised only for the purpose of establishing insider trading,” Sebi said.

The market regulator has sought comments on the proposals by August 18.