The new insider trading regulations, effective Friday, revamp those issued in 1992. The current set looks at a number of additional issues. This includes expanding the scope of the entities and individuals coming under it, as well as norms on transactions by insiders and sharing of price-sensitive information. Here, some key changes and issues.
Firms under insider trading
The traditional definition only applied to companies whose shares can be traded on the stock exchanges. The new regulations also apply for ‘proposed to be listed’ companies. This will largely cover those which plan to hit the market with an initial public offer. It seeks to regulate insiders who might have access to price-sensitive information not listed in the offer document, and prevent them from trading on its basis.
Ambiguities remain over how employee stock option schemes (ESOPs) will be regulated under the new insider trading rules. This includes questions over when they would be allowed to put through transactions and how the trading plan would apply to ESOPs.
A trading plan provides an outlook on insiders’ buying and selling decisions in advance. This plan is to be made public and is designed to give greater clarity in terms of transactions by insiders.
People outside the company can also be privy to insider information. The new regulations empower companies to ask connected persons outside the company, such as suppliers, to make disclosures of their holdings. Experts have wondered about the enforcement of this issue. Those outside the company might not be willing to provide information on their holdings or transactions. Others say in such cases, the onus of any regulatory scrutiny would shift to those who refused to provide this information.
References: Khaitan & Co, J Sagar Associates, Nishith Desai Associates