11/04/2019 - Indian Economy

KEY POINTS

Insider Trading means the illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.

Insider trading is trading on the basis of unpublished price sensitive information (UPSI) that is not generally available to everyone.

Recent regulations by SEBI

·        In 2015, SEBI had put in place a new framework for prohibition of insider trading based on the report of an expert committee.

·        SEBI made significant amendments to the 2015 regulations on the last day of 2018. To allow market participants to realign their internal procedures, SEBI has made these amendments effective from April 1, 2019.

·        The requirement for reporting trades and seeking pre-clearance before trading in the company’s shares has been extended to senior employees of material subsidiaries and promoters of listed companies.

·        The new requirements mandate that listed companies have to maintain records of personal information (including PAN, mobile number) of their directors, employees and their immediate relatives, and persons with whom such employees share a material financial relationship. 

·        These records, especially mobile number, will make it easier for SEBI to establish a connection between the company and the person who trades, and provide valuable inputs during the investigation of leakages of UPSI. 

·        SEBI has also used Facebook to establish connections between insiders in certain cases. With the use of these records, technology and SEBI’s sophisticated surveillance systems, we can expect a much higher possibility of insider trading complaints being more effectively investigated.

·        Listed companies are required to intimate the persons receiving UPSI of their obligations towards preventing misuse of such information for insider trading, by way of an advance notice.

·        The recent amendments make it clear that the regulator is rightly concerned about leakage of sensitive information and difficulty in identifying the origin of such leaks.

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When insiders, e.g. key employees or executives who have access to the strategic information about the company, use the same for trading in the company's stocks or securities, it is called insider trading and is highly discouraged by the SEBI to promote fair trading in the market for the benefit of the common investor.

AMENDMENTS IN REGULATING INSIDER TRADING BROUGHT BY SEBI:

• ·         listed companies have to maintain records of personal information (including PAN, mobile number) of their directors, employees and their immediate relatives, and persons with whom such employees share a material financial relationship.
• ·         encouraging employees to inform the company about any suspected leaks of UPSI.
•   internal investigations by listed companies are able to identify the source of leaks.