INSUBCONTINENT EXCLUSIVE:
Corporate India’s top bosses are jittery about the new insider trading regulations being implemented by the Securities and Exchange Board
The market regulator had revamped these regulations to bring several new provisions including the concept of ‘material financial
relationships’.
Under this, company insiders will have to disclose details of all people with whom they have significant financial
These insiders are not just required to reveal their own sensitive personal data but are also required to find out the annual income of
their relatives to make appropriate disclosures.
A material financial relationship is the one where the insider has received or paid any
money to anyone that is more than 25 per cent of his last one-year earnings
Interestingly, the rule would also apply in cases where the transaction is less than 25 per cent of the insider’s annual income but is
more than 25 per cent of the income of the person who is a party to the transaction
Hence, the insiders of a company will have to find out the financial information of their relatives and friends with whom they have
“The definition seems to extend both ways i.e
not only the individual who receives the payment, but also the one making the payment,” said Shruti Rajan, partner, Cyril Amarchand
Mangaldas.
“Safeguarding of this information and ensuring that it is available within the organisation on a need-to-know basis only, will
be critical from implementation point of view,” said Rajan.
A chief operating officer said on the condition of anonymity that there were
several implementation challenges with the law
“We often make advance payments to our personal staff such as domestic help and chauffeur
As per the new rules, we have to give the details of those persons as well.”
Another person impacted by the new law said rather than
asking for the details of third parties, Sebi should have kept the responsibility limited to the designated persons
“Designated persons can be asked to produce affidavits disclosing all the financial transactions they have done over a specific threshold
Such regulation will be both effective and easy to comply with,” the person said.
These rules will apply to all the designated persons of
As per Sebi’s Prevention of Insider Trading (PIT) regulations, boards of all the listed companies are expected to prepare a list of
These are the people who have reasonable access to price sensitive information
The list could include promoters of the company, board members, and other key functionaries.
Even some of the lowerrung employees who work
in departments like software maintenance could be placed in the list if they have access to insider information
All the designated persons are expected to meet the compliance requirements specified under insider trading which includes disclosure of
their investments, details of their immediate relatives etc.
‘PRIVACY CONCERNS’“Designated persons might find it difficult getting
information such as annual income of people in order to determine whether they ought to disclose details of such persons to their
companies,” said Tomu Francis, partner, Khaitan Co
“People may also be reluctant to share such sensitive financial data due to privacy concerns.”
Another key concern of the insiders seems
to be the authenticity of data
The top corporate bosses are worried they could be made liable if any of the data pertaining to the income of their relatives is found
incorrect.
“Since such a disclosure is not solely based on information in the hands of designated persons, any inaccuracy with respect to
such information should not lead to any liability on designated persons,” said Anil Choudhary, partner, Finsec Law Advisors
“By inserting such onerous restrictions, Sebi has raised the compliance costs and complexity in relation to compliance with insider
trading regulations.”
The new rules also mandate the insiders to provide personal details of all their immediate relatives including their
Further, the listed companies have also been asked to maintain structured digital database with details of all the people who had access to
unpublished price sensitive information (UPSI).
The market regulator has brought in material financial relationship to help crack cases
where an insider may have funded an unconnected person to trade on his behalf.
Sebi notified these new insider trading regulations on
These were based on the recommendations of a committee on fair market access.
The increased compliance requirements are aimed at increasing
accountability and curbing any leak of UPSI
The issue came to focus last year when the quarterly results of several blue-chip companies were leaked over social media platforms such as
