Insider trading Current Affairs

SEBI constitutes TK Viswanathan committee on fair market conduct

Market regulator Securities and Exchange Board of India (SEBI) has set up a committee on ‘fair market conduct’. It will be headed former law secretary T K Viswanathan.

The committee will suggest measures for improving surveillance of the markets and strengthen rules for algorithm trades, among other norms.

Its members include representatives from law firms, mutual funds, retail and institutional brokers, forensic auditing firms, foreign portfolio investors, stock exchanges, chambers of commerce, data analytics companies and the markets regulator.

Need

The securities market environment is dynamic, so there is need for periodic review of regulations and surveillance mechanisms in order to effectively discharge the objectives of SEBI.

Terms and Reference of Committee

The committee will suggest measures for improvement in PFTUP (Prohibition of Fraudulent and Unfair Trade Practices) regulations, PIT (Prohibition of Insider Trading) norms and norms mainly related to ‘trading plans’ and handling of ‘unpublished price sensitive information’ during takeovers.

It will suggest short term and medium term measures for improved surveillance of the markets as well as issues of high frequency trades, harnessing of technology and analytics in surveillance. It will suggest evidentiary issues in anti-fraud enforcement. It will be also responsible for recommending steps to align insider trading regulations with Companies Act provisions.

About Securities and Exchange Board of India (SEBI)

SEBI is the statutory regulator for the securities market in India established in 1988. It was given statutory powers through the SEBI Act, 1992. Its mandate is to protect the interests of investors in securities, promote the development of securities market and to regulate the securities market.

SEBI is responsive to needs of three groups, which constitute the market, issuers of securities, investors and market intermediaries. It has three functions quasi-legislative (drafts regulations in its legislative capacity), quasi-judicial (passes rulings and orders in its judicial capacity) and quasi-executive (conducts investigation and enforcement action in its executive function).

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SEBI notifies stringent insider trading norms

The Securities and Exchange Board of India (SEBI) has notified stringent revamped rules related to the Insider trading.

Insider trading refers to the trade of a company’s stocks or other securities and making unethical profits with access to the non-public information. This is detrimental to the other / small investors who don’t have such information.

In this regard market regulator has issued SEBI (Prohibition of Insider Trading) Regulations, 2015. Thus, revamping nearly two-decade old regulations on insider trading.

The key facts about new rules are as follows:

  • It highlights greater clarity on concepts and definitions along with a stronger legal and enforcement framework for prevention of insider trading.
  • The new rules has expanded the definition of insider. It says that that anyone who is in contractual, fiduciary or employment relations with the promoters will be presumed to be ‘insiders’. Thus, the new rules include the immediate relatives of promotes, directors and employees who are in possession or have access to such information, within the scope of insiders.
  • The new rules make it mandatory that the perpetual insiders such as promoters and directors will have to disclose their future trading plan in advance to the stock exchanges. They are required to trade strictly as per that plan in order to protect the interest of investors
  • The definition of the unpublished price sensitive information (UPSI) has been broadened. Earlier, it has reference to only to company but now, it will have reference to company as well as securities.

Background

The rules have been prepared after taking into consideration recommendations of Sodhi panel and other panel recommendations.

It should be noted that a panel headed by former Justice N K Sodhi (former Chief Justice of Karnataka and Kerala High Courts) had submitted its report on insider trading norms in December 2013.

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