Promoters and top executives, intending to buy or sell shares of their companies, may soon have to inform the market well in advance before such transactions. Securities and Exchange Board of India (Sebi), which is in the process of an overhaul of its insider trading rules, is considering such a plan as it attempts to clamp down on misuse of share price sensitive information by those privy to it.

 

The proposal was discussed by the high level insider trading committee set up by the Securities and Exchange Board of India (Sebi). A 19-member panel was set up by Sebi in April to review the two decade-old insider trading regulations in the country.

 

Currently, promoters and other company insiders have to make a disclosure with the stock exchange only within five days of the trades. Sebi’s committee feels the post-trade disclosure puts minority shareholders at disadvantage.  

 

Once Sebi makes it a rule, promoters and insiders may have to specify a window, maybe up to three months in prior, during which they would buy or sell their own shares, said people with the direct knowledge of the development.

 

Insider trading is when company insiders---promoters, senior management and directors---trade in the stock of their own company on the basis of information which is not available to the public shareholders.

 

The committee, headed Justice NK Sodi, former presiding officer at Securities Appellate Tribunal, is also looking at revamping other disclosure requirements to ensure price sensitive information reaches the public in a more symmetric manner.

 

“More effective methods to ensure companies don't give out selective information to fund managers or brokers but it first reaches the general public at large at being looked at,” said a source familiar with the matter.

 

Proxy advisory firms said improving disclosure standards alone cannot help in tackling the menace of insider trading.

 

“Improving disclosure standards is positive but that by themselves cannot curb insider trading. There should be a stricter penalty, like Jail, so that it acts as a deterrent. Today that's not happening,” said Shriram Subramanian, managing director of InGovern Research Services.

 

In the US last year, Rajat Gupta, the former Goldman Sachs Group director, and billionaire hedge-fund manager Raj Rajaratnam were jailed in one of the biggest crackdown on insider trading by the American government. Gupta was found guilty of passing confidential tips to Rajaratnam.

 

JN Gupta, MD, Share Holder Empowerment Services said, “if an insider has to pass on sensitive information to someone it's very difficult to stop that and even more difficult to prove it. The enforcement and surveillance should be stricter.”

 

Subramaniam said insider trading is often tough to prove and Sebi should improve its surveillance so that the guilty are caught.

 

The regulatory committee is also looking at optimising Sebi's newly gained powers, such as search & seizure, to crackdown on insider trading.

 

Another source close to the development said that the expert panel has finished with the bulk of the work and the final recommendations are expected soon.

 

"The report is almost ready. It is expected to be signed and presented to Sebi in a meeting on December 7. The regulation is expected to be passed within the calendar year," said the person.

 

In May, Sebi had invited comments and suggestions from the public on insider trading regulations.

 

The current regulations on insider trading---Sebi (Prohibition of Insider Trading) Regulations, 1992--have seen several amendments over the years, however, the regulator is eyeing a complete revamp of the existing framework to deal more effectively with the menace of insider trading. The marker regulator intends to bring at par the regulations with global standards. (Business Standard)