Major market reforms cleared by Sebi Board

The twenty years old insider trading rules stand replaced by the board of Securities and Exchange Board of India (Sebi) in turn making huge market reforms. The decades old insider trading rules have been displaced by new prohibition of insider trading (PIT) regulations which now amends the existing delisting regulations.

Sebi has also come out with alterations in consent mechanism which is going to give an option of settling matters before the issue of show-cause notices and start of enforcement proceedings to entities that violate security laws. All this is going to be achieved through basic notices that simply state the probable action. It must be noted that this will only be the case for minor violations.

 As per the market regulator’s press release, the rules around insider trading have been strengthened by clearing new definitions of unpublished price-sensitive information (USPI), insider and connected persons, reported Business Standard.

Up till not a connected person was only made the basis of the position held by him but as per the new regulations, it would include immediate relatives. Also an insider would now mean a person who is in possession of or has access to price-sensitive information.

The new PIT regulations which have been released by Sebi have been made on the commendation of the N K Sodhi committee, which submitted its report to the regulator in December, 2013.

Based on the committee’s recommendation the regulator could now decide whether he wants additional defences.

Price-sensitive information cannot be communicated to anyone without legitimate purposes. However, there could be cetain defence, such as if a communication was in the ordinary course of business, or an acquisition was under the Takeover Code. As a result companies in possession of insider information around the year are required to declare their trade plans to stock exchanges, well in advance.

“The perpetual insiders like promoters and directors would be required to frame their future plans well in advance, disclose those to stock exchange and then strictly abide by such plans. This might lead to speculation in share prices, since the public would have an advance knowledge of their trading plans,” excerpted Tejesh Chitlangi, Partner, IC Legal.

A delisting shall be considered successful only when the shareholding of the promoter, together with shares tendered by public shareholders, reaches 90 per cent of the total share capital. At least 25 per cent of the public shareholders need to be part of a reverse book-building process.

“Regulation would consolidate and streamline the provisions of existing listing agreements, thereby ensuring better enforceability,” said the Sebi press release.

As per the press release, the market regulator is also reviewing the policy with respect to restricting a company categorized as a willful defaulter, and its promoters and directors, from raising capital.

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