SEBI Tightens Noose on Insider Trading

  • October 1, 2024
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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SEBI Tightens Noose on Insider Trading

Sub : Eco

Sec: Capital Market

In a bid to strengthen regulations and curb insider trading, SEBI (Securities and Exchange Board of India) has introduced significant amendments.

  • Expansion of the Definition of “Connected Persons”:
    • SEBI has expanded the definition of “connected persons” to include entities and individuals with potential access to unpublished price-sensitive information (UPSI).
  • New inclusions under “connected persons”:
    • A firm or its partner or employee in which a “connected person” is also a partner.
    • A person sharing household or residence with a “connected person”.
  • Amendments to Prohibition of Insider Trading (PIT) Regulations, 2015:
    • SEBI has made significant updates to the PIT Regulations to ensure that more people potentially exposed to price-sensitive information are covered under the regulations.
    • The term “immediate relative” has been replaced by “relative”, expanding the scope of individuals affected by the regulation.
  • Expanded Definition of Relatives:
    • As per the new norms, the definition of “relative” includes:
      • Spouse, parents, and in-laws.
      • Siblings of both the person and their spouse, and their respective spouses.
      • Children of the person and their spouse, and their spouses.
    • Improved Investigation and Enforcement:
      • These changes are designed to include persons who have access to unpublished price-sensitive information (UPSI) but were not previously categorized as “connected persons” or “immediate relatives”.
      • The broader definition will enable more effective investigation and enforcement of insider trading violations.
      • These amendments aim to tighten control over individuals with access to UPSI, thus facilitating better regulatory oversight and ensuring stronger enforcement actions against insider trading violations.

SEBI (Prohibition of Insider Trading) Regulations, 2015

The SEBI (Prohibition of Insider Trading) Regulations, 2015 were established by the Securities and Exchange Board of India (SEBI) to prevent insider trading in securities markets and ensure transparency and fairness in the trading process.

Key Provisions of SEBI (Prohibition of Insider Trading) Regulations, 2015

  • Definition of Insider:
    • An insider is defined as a person who is or was connected with the company or has access to unpublished price-sensitive information (UPSI) about the company.
  • Prohibition of Insider Trading:
    • No insider shall trade in securities of a company when in possession of UPSI.
    • Trading based on the information that is not generally available is strictly prohibited.
  • Unpublished Price-Sensitive Information (UPSI):
    • UPSI is information related to a company that is not public and could materially affect the price of its securities.
    • Examples include financial results, mergers and acquisitions, changes in the board of directors, etc.
  • Communication of UPSI:
    • Insiders are prohibited from communicating or procuring UPSI to/from others, except in the ordinary course of business or under a legal obligation.
economy SEBI Tightens Noose on Insider Trading