Mamp;A 8212; insider trading takes root

8220;It has become part of the system. SEBI needs to tighten the rules against insider trading,8221; said BSE broker D Pawan. Before HDFC Bank-Times Bank merger was announced last month, share prices and volumes of both the banks shot up. Similarly, prices and volumes of Gujarat Ambuja and ACC moved up before the former acquired a significant stake in ACC. 8220;It is now common to see the share prices and volumesshooting up before a merger or takeover is announced. Nothing much is being done to prevent this menace. Exchanges have done precious little to counter this. It was only recently that the National Stock Exchange started asking companies when rumours go around about a takeover or merger,8221; said an analyst.

According to another analyst, SEBI has not investigated some insider trading cases with the same zeal and zest as in the case of Hindustan Lever. 8220;When the authorities turn a blind eye towards insider trading cases, others take things for granted. When a business group recently acquired a South-based company, the group8217;s chairman himself leaked the news to a group of people including a newspaper editor,8221;said a market source.

The committee on corporate governance constituted by SEBI is looking into some of the major issues connected with insider trading and disclosures by companies during takeovers, mergers and acquisitions.A sub-group under the corporate governance committee is deliberating on twoissues: first, when should the information about negotiations on takeover or substantial acquisition be made public; and, second, what the companies themselves need to do 8211; whether there should be some guidelines for the conduct of their directors, price conduct and so on.

It was very difficult to say at what point disclosures should be made and how much. quot;Say, for example, I decide to take over a company. Negotiations are on and then I make it public. If, for some reason then I don8217;t do it, prices would go up, and then they will fall 8211; especially if it is a merger and acquisition case. Then people will say that it has been deliberately done to make the prices go up and some investors may lose money,quot; a Sebi official was recently quoted as saying.

There is also a scenario where negotiations are on and the takeover deal goes through. In this case nothing has been made public but some people in the company know about it and they take advantage of their inside knowledge 8211; again there is a loss to theinvestor. This is a tricky situation.

Ideally, disclosure would be proper only when the deal was concretised, but again the question is when it should be treated as concrete. The existing rules on disclosures to exchanges need to be further amplified and quot;a more clear statement has to emergequot;. Companies are also anxious to know about the timing of disclosures. Last year witnessed a number of firms restructuring themselves through acquisitions and mergers. As many as 549 companies had undergone restructuring partly on a promoter-to-promoter transfer basis out of which 139 companies had adopted the open offer process while the remaining 410 companies had taken the automatic exemption route.

In many of the cases, the share prices of both the acquiring company as well as the target company had reported sharp increases in the major stock exchanges.

8220;In any merger, takeover or any kind of restructuring, the company, its board and management should be careful about leaks. We see company directors and evenchairman and other associates misusing the information and indulging in insider trading. I8217;ve not come across a single case where stock exchanges have taken action against in an insider trading case. They are just overlooking facts,8221; said an investor. Investors also need to question companies and their officials about insider trading.