The Securities and Exchange Board of India has made a stricter regime of the insider trading rules by widening the scope and align it with the best international practices. The apex watchdog finalised the insider trading rules based on the recommendations of the committee deliberations.
SEBI has tightened the rules by widening the definition of an insider to cover any person who is a “connected person” or in possession of or having access to unpublished price-sensitive information.The regulator has defined “connected person” as any person who is in frequent communication with the officers of a company or by being in contractual, fiduciary or employment relationship with the company among other things.
A new feature in the new rules that has been added is that the burden to prove of establishing that the connected person was not in possession of Unpublished price sensitive information would be on him. But, if the person who has been alleged with insider trading violations is not connected to the company, then the burden of proving the same would be on the market regulator.
“Under the new rules, mere communication of Unpublished price sensitive information would be punishable. Earlier, the regulator’s stand was that mere communication without any trade would not be proceeded against.
Insiders are allowed to communicate information only for legitimate expectations, performance of duties and discharge of legal obligations. The regulator has also given an exemption for companies to provide Unpublished price sensitive information for the purpose of conducting due diligence.
“It is intended to permit communicating, providing, allowing access to or procuring Unpublished price sensitive information also in transactions that do not entail an open offer obligation under the takeover regulations if it is in the best interests of the company.