Insider trading regulations overhaul: What to expect

The Justice NK Sodhi Committee has recommended an overhaul of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, and has put together a set of recommended regulations titled the SEBI (Prohibition of Insider Trading) Regulations, 2013.

Stock traders, investors, listed companies, promoters, directors and others connected with key decision making of listed companies as well as legal practitioners often struggle with tricky interpretational dilemmas under the existing regulations when evaluating an acquisition or divestment proposal. In this regard, the committee’s recommendations appear to take a more investor-friendly and pragmatic approach in some respects, without deviating (in principle) from the need to regulate insider trading activity in listed securities and dissemination of unpublished price sensitive information (UPSI). A few highlights of the proposed regulations are discussed below.

Definition of “insider” streamlined and “connected person” expanded: The existing regulations define an “insider” as “any person” who is or was connected with the company or is deemed to have been connected with the company and is reasonably “expected to have access to” UPSI or has received or had access to such UPSI. A large set of persons was deemed to be connected with the company.

Aakash Choubey is a partner and Vatsal Gaur is an associate at Khaitan & Co, Mumbai. Views are personal.