SEBI tightens noose on insider trading

The logo of Securities and Exchange Board of India (SEBI). File
| Photo Credit: Reuters

In a bid to tighten the noose on insider trading, the Securities and Exchange Board of India (SEBI) on Monday decided to expand the definition of “connected persons” who have access to price sensitive information.

According to the decision ratified by the board, a connected person would now include “a firm or its partner or its employee in which a ‘connected person’ is also a partner,” and “a person sharing household or residence with a ‘connected person.”

SEBI has also amended its Prohibition of Insider Trading (PIT) Regulations of 2015 to expand the ambit of relatives covered under the securities law, by replacing the word “immediate relative” with “relative”. As per the new norms, relatives will include a person’s spouse, their parents and in-laws, siblings of the person and the spouse and those siblings’ spouses, child of person and child of spouse, and those children’s spouses.

“There are persons who have access to unpublished price sensitive information (UPSI) or could be reasonably expected to have access to UPSI but are not currently included in the definition of ‘connected person’ and immediate relative,” the Board said. These changes aim to facilitate effective investigation and enforcement against insider trading, it said.

The regulator further said that this definition would not impact the provisions of the code of conduct, which were applicable to designated persons and their immediate relatives, and that the new amendments would not warrant any “additional disclosures.”

In another set of regulatory changes, SEBI proposed that offshore derivative instruments (ODI) and segregated portfolios of FPI will be treated on a par with FPIs in terms of regulation.

The markets watchdog also prescribed norms for violations and caps on the instruments used in FPIs use to issue ODIs.

P-Notes or offshore derivative instruments (ODIs) so far had more relaxed regulations compared with other FPIs, making it relatively easier for financial irregularities and frauds.

Apart from legal and regulatory changes, SEBI introduced MF Lite framework with more relaxed regulations compared with regular mutual funds investments.

The regulator also introduced a new asset class “to bridge the gap between mutual funds and portfolio management services in terms of flexibility in portfolio construction,” and regulations for the asset class.

The board also decided upon a host of proposals and regulations to improve ease of doing business.