SEBI widening scope of 'connected persons' to curb insider trading
The Securities and Exchange Board of India (SEBI) is proposing an expansion of regulations, aimed at curbing insider trading. The market regulator's plan involves broadening the scope to include a larger group of individuals, especially those connected to officials with access to price-sensitive information. SEBI aims to redefine definitions of "connected persons" and "relative" in order to address potential gaps in the current norms.
SEBI targets unpublished price-sensitive information holders
SEBI has noted that individuals not currently covered under these norms may still possess unpublished price-sensitive information (UPSI), due to their close links with officials or key employees of a company. "Such deemed connected persons, owing to their proximity and close relationship with the connected persons, are considered to be in such a position where they can potentially indulge in insider trading," SEBI stated in a consultation paper. The regulator's proposed changes aim to prevent potential violations by these individuals.
Changes to insider trading definitions
Under SEBI's Prohibition of Insider Trading (PIT) rules, the terms 'insider,' 'connected persons,' and 'immediate relative' are defined as individuals who can monitor their trades, when the information has not been made public. The proposed changes include expanding the definition of "deemed connected persons" to include relatives, related firms or partners, people within the same household, and a Hindu Undivided Family (HUF) where Karta (head) might be related to the connected person.
SEBI to replace 'immediate relative' with 'relative'
SEBI plans to replace the term 'immediate relative' with 'relative' in order to encompass a wider group of family members like parents, spouse, siblings, and parents of spouse, among others. However, the regulator clarified that it will retain the definition of 'immediate relative' to make sure there is no increase in compliance requirements. "The requirement for disclosures of trades of 'immediate relative' by promoters, directors, designated persons under PIT Regulations will continue," SEBI said.
