New insider trading norms to target honchos, auditors; bar likely on derivatives trade
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Directors and senior managers of a listed company may not be allowed to trade in derivatives of their company's stock while law firms and auditors, often privy to unpublished price-sensitive information, are likely to have a new code of conduct.
These proposals, aimed at curbing insider trading, will be discussed by the Securities & Exchange Board of India at its next board meeting on November 19.
The suggestion to prohibit forward dealings in securities of a company by its directors and key managerial personnel is in line with Section 194 of the Companies Act, 2013.
"This makes eminent sense, as a person with inside information is likely to use derivatives to maximise returns on his illegal use of inside information," said Sandeep Parekh, founder of Finsec Law Advisors and the author of a book on insider trading and securities frauds.
A Sebi-constituted committee under the chairmanship of Justice NK Sodhi has carried out a comprehensive review of two-decade-old insider trading regulations to align them with best global practices.
The new regulatory code may be stricter than what the expert panel has suggested. For instance, the committee report is silent on derivatives trading by directors. And while Sebi may make it mandatory for law firms and auditors to designate a person as compliance officer, the committee felt it should be optional as such organisations are covered by the rules of their respective regulatory bodies.
"Law firms and auditors may have access to insider information. Typically, these professionals would be covered by the rules of their own professional bodies, and personally I'm not supportive of multiple regulators. Smaller firms will be most affected by making this mandatory," said Suhail Nathani, partner, Economic Laws Practice. The Sebi board will finalise the code after considering the feedback on the expert panel report. (Economic Times)
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