MUMBAI : A high-level committee set up by the Securities and Exchange Board of India has recommended more stringent insider trading norms by widening the ambit of insiders and connected persons to include even public servants and judges trying corporate cases and putting the onus on alleged offenders to prove they have not violated the norms.
Any person who possesses unpublished stock price sensitive information about a company would be deemed as an insider and any person who has been associated with a company in any capacity up to six months prior to trading in its stock would be termed as “connected person”.
This will include public servants or persons occupying a statutory position that allows him access to unpublished price sensitive information and, in some cases, even immediate relatives of people having such information.
Also, judges who have heard arguments in corporate cases–outcome of which would be materially adverse or materially positive to the price of a company’s shares–would be considered as a connected person until the order is pronounced.
However, people termed insiders who possess sensitive information all round the year would have the option to formulate pre-scheduled trading plans which would have to be disclosed to the stock exchanges and strictly adhered to.
“In such cases, the new UPSI (unpublished price sensitive information) that may come into their possession without having been with them when formulating the plan would not impede their ability to trade,” the committee said.
The panel recommended that initially the onus will be on the person levelling the charge to prove that a person was in possession of unpublished price sensitive information at the time of trading. Once the charge is established, the accused will have to prove that he did not violate rules.
The 19-member committee that proposed these changes was headed by N.K. Sodhi, former chief justice of high courts of Karnataka and Kerala. SEBI has sought comments on the proposed regulation by Dec 31.
Companies would be allowed to conduct due diligence on listed companies for transactions that may require the former to make an open offer for shares. In all other cases, due diligence would be permissible only if the companies make their findings public before trading in the target’s shares.
The panel defined unpublished price sensitive information as well as generally available information more clearly.
Information to which public has non-discriminatory access would be deemed as generally available, while everything else, including financial results, dividends, change in capital structure, mergers, de-mergers, acquisitions, de-listings, disposals and expansion of business and such other transactions, and changes in key management personnel would be treated as insider information.
Trading in shares based on unpublished price sensitive information is prohibited except in certain situations.
“Insiders would be prohibited from communicating, providing or allowing access to UPSI unless required for discharge of duties or for compliance with law,” the committee said.
The panel also suggested that all trades by promoters, employees, directors of a company and their immediate relatives be disclosed internally to the company and to the exchanges if it exceeds a threshold. The panel has suggested a threshold of 1 mln rupees worth of trade in a company’s share
during a quarter. All listed or to-be-listed companies would be required to formulate and publish a code governing disclosure of events and circumstances that would impact price discovery of its securities, the panel suggested.
All listed companies and market intermediaries would also have to formulate a code of conduct to regulate, monitor and report trading in securities by its employees and other connected persons. The disclosure norm may also apply to third-party connected persons who are not employees of a company. -Cogencis