Sebi panel proposes stricter insider trading norms .

MUMBAI: Ministers, judges and policy makers with access to price-sensitive information should be brought under the ambit of new insider trading norms, a Securities and Exchange Board of India panel has proposed, in a move aimed at widening the rules and clamping down on the practice.

The 19-member committee headed by Justice NK Sodhi, former presiding officer of the Securities Appellate Tribunal, proposed that public servants and persons holding statutory positions be banned from trading while in possession of unpublished price-sensitive information (UPSI), the first time such a measure has been suggested.

"The committee felt that there was an impression in the market that public servants were not covered so we have made it explicit in our new proposal, which is implicit under the current regulations," Sodhi told ET. "Our proposals, if accepted by the Sebi board, will go a long way in curbing insider trading in India. We have tried our best to provide a level-playing field to all the traders and investors in the market."

Some analysts said the move could lead to a further drag on decision-making that has already slowed owing to the increased scrutiny of auditors, courts and investigative agencies. The panel was of the view that a judge hearing arguments in a complex tax proceeding, the outcome of which would be materially adverse or positive to the stock price of a company, would be a 'connected' person until the order is pronounced. The same condition would apply to a government official involved in policy making on any matter that could result in material impact on the price discovery for securities of a listed company. This could include deciding on the pricing policy for a natural resource or a limit on foreign investment in a specific sector. India's capital market regulator set up the high-level committee on March 5 to strengthen the regulatory framework to contain insider trading.

The panel, which submitted its report on new insider trading norms to Sebi chairman UK Sinha on December 7, said financially-dependent close relatives of company officials, fund managers, brokers and traders should be treated as insiders. Besides, information should be considered to be generally available only if it is disclosed on the stock exchange website.

The Sebi panel has made a clear distinction between generally available information and unpublished price-sensitive information, perhaps for the first time. A medical emergency suffered by a company chief at a hospital may be regarded as public information while such an incident occurring at a board meeting could be treated as unpublished price-sensitive information, since not everyone would be aware of it. Insider trading refers to buying and securities with the advantage of having asymmetrical access to unpublished information which when published would impact the stock price of a company.

Promoters, employees, directors and their immediate relatives should disclose trades exceeding 10 lakh within a quarter to the stock exchanges, according to the proposals. They would also have the option of formulating a trading plan that would then have to be disclosed to the bourses and strictly adhered to. Companies should be allowed to conduct due diligence only for the purpose of making an open offer under the takeover code. In all other cases, the board of a company would need to give an opinion that permitting due diligence is in its best interests, besides ensuring the execution of non-disclosure and non-dealing agreements.

The panel has sought comments from the public on the proposals by the end of the year.

Securities market lawyers said proving insider trading cases is a challenge as the charges are invariably based almost entirely on circumstantial evidence. "Tightening of insider trading norms was required but still the challenge for Sebi will be to prove its case beyond doubt," said JN Gupta, former executive director of Sebi.

Source : economictimes.indiatimes.com