SEBI approved new Insider trading rules

The Securities and Exchange Board of India (SEBI) has revamped the rules related to the Insider trading for the protection of the smaller investors. Insider trading refers to the trade of a company’s stocks or other securities and making unethical profits with access to the non-public information. This is detrimental to the other / small investors who don’t have such information.
The new rules align the insider trading rules to current international practices. The key changes are as follows:

• The biggest problem under the current rules is that the burden of proof (whether a person indulged into insider trading) was on SEBI. It was very difficult to prove that someone was insider. In the new rules, the burden of proof is on the accused and not the regulator.
• In the new rules, the definition of the term “insider” has been broadened. The new rules say that anyone who is in contractual, fiduciary or employment relations with the promoters will be presumed to be ‘insiders’. Thus, the new rules include the immediate relatives of promotes, directors and employees who are in possession or have access to such information, within the scope of insiders.
• The new rules make it mandatory that the perpetual insiders such as promoters and directors will have to disclose their future trading plan in advance to the stock exchanges. They are required to trade strictly as per that plan.
• The definition of the “price sensitive information” has been broadened. Earlier, it has reference to only to company but now, it will have reference to company as well as securities.

The menace of Insider trading is not among the small firms but in big companies as well. It is a known fact that most of the profits are earned by the promoters and for SEBI it was very difficult to prove if someone was really an insider. The new rules give more teeth to SEBI to crack down on insider trading.

Month: Current Affairs - November, 2014