-CS Saibal C.Pal, Advocate*

Saibal C. Pal1. Introduction

Friday, the 15th May,2015 is an eventful day for the capital market. The market moved closer to the likes of UK and USA. The SEBI (Prohibition of Insider Trading) Regulations, 2015 which was gazetted on 15th January,2015 came into force on the 120th day from the date of its publication in the Official Gazette. As per S 30 clause (g) of ss (2) of S11 and clause (d) and clause (e) of S 12A of SEBI Act,1992, SEBI is empowered to make regulations to fulfill the objective of the Act enshrined in the preamble to the Act.

2. Background

Then new Regulation replaces the SEBI ( Prohibition of Insider Trading ) Regulations,1992 amended on 29/10/2002. The regulation of 1992 was considered to be made market compliant and at par with the practices in UK and USA the face of developed securities market. Recent incidents required the Regulator to amend the Regulation and bring into force the current Regulations. India had cases of insider trading and the accused often got away on the absence of evidence and the weakness in the regulations. India watched the insider trading episode of Rajat Gupta in which he stands convicted and is imprisoned.

3. Changes at a Glance

i.  The ambit of persons who fall within the definition of ` insider’ ( Reg 2(g) ) as per the Regulations has been expanded. It includes both entities and individuals. Patterns of behavior on transactions by an insider and manner of sharing price sensitive information (UPSI) have been laid down explicitly,

ii. Companies going for IPOs with intention of listing in a bourse (BSEand /or NSE).The Regulation has covered insiders who have access to price sensitive information at the time of dealing with the IPO of an entity.

iii. ESOPs issued to employees will be regulated by the Regulations. A restriction is imposed on employees from exercising their ESOPs and the allottees of shares under ESOPs will not be allowed to sell the shares for a period of six months from allotment.

iv. Price sensitive information obtained during conducting `Due Diligence’ by persons shall have to be disclosed and the person obtaining the information will be considered a deemed insider.

v. Trading plan between the seller and buyer for sale/purchase of shares is to be allowed. Such plan is to be informed to the bourses/stock exchanges. Such plans once made public cannot be cancelled. Any cancellation will lead to violation of the Regulations and will attract penalty.

vi. Pledge of shares by Promoters will also fall within the purview of the Regulations.

vii. `Connected Persons’ has been defined under the regulations and means a person who has connection with the listed entity who is likely to obtain `unpublished price sensitive information ‘ (UPSI) . Persons not occupying position in a company will now be covered as a connected person if they are in the know of operations.

viii. Mutual Funds have been left out of the purview of the Regulations.

4. Critical Analysis

The overhauling of the Regulation was long over due. The Regulation which was first notified on 19.11.1992 was amended on 20.02.2002. Thereafter, the Regulation remained. Meantime, SEBI penalized companies and promoters for indulging insider trading practices and penalty pursuant to S 11 G of the SEBI Act,1992 was imposed wherever persons and companies were found guilty.

The Regulations of 1992 have been replaced by the new Regulations of 2015 to meet the market challenge. The Regulations have been made to suit the present market situation. The Rajaratnam and Rajat Gupta cases showed how insiders are dealt in well regulated capital markets. SEBI has not dealt cases in the manner of Rajaratnam and Rajat Gupta under the Regulations of 1992 but have equipped itself with the regulations of 2015 to face such instances in the future. The new Regulations will discipline the capital market further. Provisions that required market to be free from likely involvement have been safeguarded. Only implementation will prove whether the new Regulations are market driven. Transparency is the key word applicable to the capital market and the market can only develop if proper disclosures are in place by the affected persons. The definition of insider has been widened and has included not only listed companies but also those companies planning listing through IPO or otherwise. The Regulations of 2015 have been prepared from the point of view of stakeholders rather than shareholder point of view. To-day we are gradually moving towards stakeholder economy and the regulation is a point in the direction. India is a large country and the capital market has not been able to penetrate in the manner it is aimed. Implementation of Regulation will be difficult and the effect of the objection of the adoption of the new Regulations will take some time till benefits pour into the capital market.

5. Conclusion

Insider trading regulations are strictly adhered in the UK and USA and India one the fast developing capital markets has toed them only in the interest of a stable economy for the interest of the country.

Copyright & Publishing right with Author- Edited by : Soubhik Chakraborty, Advocate.

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