SEBI revises insider trading norms

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SME Times News Bureau | 20 Nov, 2014
The Indian stock market regulator Wednesday approved the new regulations governing insider trading which includes widening the term 'insider', strengthening the term 'unpublished price sensitive information', and prohibiting communication of unpublished data besides other aspects, the SEBI said.

The market regulator also revised its share delisting regulations.

In a statement issued here, the Securities and Exchange Board of India (SEBI) said: "The new regulations strengthen the legal and enforcement framework, align Indian regime with international practices, provide clarity with respect to the definitions and concepts, and facilitate legitimate business transactions."

The SEBI board which met here approved the new regulations that prohibit insider trading and other proposals.

According the SEBI (Prohibition of Insider Trading) Regulations, 2014, the definition of insider has been made wider by including persons connected on the basis of being in any contractual, fiduciary or employment relationship that allows such person access to unpublished price sensitive information (UPSI).

The term connected persons include immediate relatives.

"However directors, employees and all other persons in the deeming category covered under 1992 regulations would continue to be covered. Insider will also include a person who is in possession or has access to UPSI. Now, immediate relatives will be presumed to be connected persons, with a right to rebut the presumption," SEBI said in the statement.

In 1992 regulations, definition of connected person was largely position based. According to the new regulations, in the case of connected persons the onus of establishing, that they were not in possession of UPSI, shall be on such connected persons.

The new regulations clearly prohibits communication of UPSI except legitimate purposes, performance of duties or discharge of legal obligations.

"Considering every investor's interest in securities market, advance disclosure of UPSI at least 2 days prior to trading has been made mandatory in case of permitted communication of UPSI," SEBI said.

UPSI has been defined as information not generally available and which may impact the price. The definition of UPSI has been strengthened by providing a test to identify price sensitive information, aligning it with listing agreement and providing platform of disclosure.

Earlier, the definition of price sensitive information had reference to company only; now it has reference to both a company and securities.

"Companies by law would be entitled to require third-party connected persons to disclose their trading and holdings in securities of the company," SEBI said.

The new regulations also prohibit derivative trading by directors of a company.

Revising the delisting regulations SEBI said the delisting shall be considered successful only when (A) the shareholding of the acquirer together with the shares tendered by public shareholders reaches 90 percent of the total share capital of the company and (b) if atleast 25 percent of the number of public shareholders, holding shares in dematerialised mode as on the date of the Board meeting which approves the delisting proposal, tender in the reverse book building process.

The offer price determined through Reverse Book Building shall be the price at which the shareholding of the promoter, after including the shareholding of the public shareholders who have tendered their shares, reaches the threshold limit of 90 percent.

The new regulations also prohibit the promoter or promoter from making a delisting offer if any entity belonging to the said group has sold shares of the company during a period of six months prior to the date of the Board meeting which approves the delisting proposal.

The Board approved the proposal to review the policy in respect of restricting an issuer company/its promoter/directors, categorized as wilful defaulter, from raising capital after going through the public consultation process.

The market regulator also approved a proposal permitting asset management companies (AMC) who are yet to meet with the revised networth requirement of Rs. 50 crore, to launch a maximum of two schemes per year till the time such AMCs meet with the net worth requirements.

Such permission would be considered on a case to case basis, depending on such AMCs demonstrating that serious efforts are being made by them to meet the net worth requirements within the prescribed timelines.