The Securities and Exchange Board of India (Sebi) recently cleared a number of decisions in its board meeting. One major step was to change insider- trading regulations, which prohibit the communication of unpublished price-sensitive information by insiders, those legitimately in the know, for personal gain. The current regulations were framed in 1992 and the new rules have tightened restrictions in keeping with global best practices. Another important change is the introduction of regulations for the settlement of certain administrative and civil proceedings even before the issuance of a show-cause notice. Currently, settlement can occur only after a formal show-cause notice is issued. As the regulator of a rapidly evolving and globally interconnected securities market, Sebi’s steps to revamp its regulatory framework are welcome. However, some changes may lead to unwelcome consequences and need further consideration.
Insider trading is widely believed to be a regular phenomenon in the Indian securities market. One reason for this is the lack of adequate enforcement machinery. Therefore, while changes to insider trading regulations were required, Sebi must now make commensurate additions to its supervisory and enforcement capacity. The Justice N.K. Sodhi report, on which the new regulations are based, had also recommended that public servants with access to unpublished price-sensitive information be brought within the definition of insiders. But Sebi does not indicate if that’s been incorporated.
