New insider trading norms to have clearer definitions, wider disclosures

The Securities and Exchange Board of India is likely to consider tougher norms for insider trading and new listing regulations during its board meeting on November 10.

SEBI Chairman UK Sinha said here on Friday that the capital market regulator will roll out tougher norms against insider trading by next month. He also said that listing regulations replacing the listing agreement is likely to be announced next month.

He said the listing agreement will be replaced by the new listing regulations. Listing agreement prescribes conditions and disclosures to be followed by a listed company on a stock exchange. It is an agreement between the listing company and the stock exchanges on which company’s shares are available for buying and selling.

“Now we are getting into listing regulations. In the legal hierarchy, the regulation has larger force of law as compared to an agreement.

“So what it means for all of us is that violation of listing regulations will attract immediate penalty and prompt action by SEBI. We are going to do this, maybe as early as next month,” he said.

“We are also revising our prevention of insider trading regulations, because we have discovered that there are cases and unfortunately these are not confined just to small companies but also big companies,” Sinha said while addressing a conference titled ‘Improving board effectiveness’ organised by leading audit firm KPMG.

The proposed new system will be based on the recommendations of the Justice NK Sodhi Committee, set up to review the SEBI (Prohibition of Insider Trading) Regulations, 1992. The Committee submitted its report in December last year. The committee suggested a new framework comprising much clearer definition of insider and connected person, method of compliance and actions in the event of violation. The framework also prescribes wider disclosures.

He hoped that as an independent director the person concerned is “made aware of what are the requirements for you, so far as insider trading is concerned.

There are situations where you are not aware of what is happening, you might innocently share some information with somebody and that person might compromise you.”