• Sebi tightens insider trading, listing rules

The board of Securities and Exchange Board of India (Sebi) on Wednesday tightened the insider trading rules, eased delisting norms, cleared a new set of listing regulations and imposed restrictions on wilful defaulters, prohibiting them from accessing the capital market.

Sebi also approved stricter norms and fixed a new definition for ‘connected people’ to check the menace of insider trading.

Under the new insider trading regulation, the definition of an insider has been widened, by including persons connected on the basis of being in any contractual, fiduciary or employment relationship that allows them access to unpublished price-sensitive information (UPSI). This would now include directors and employees, apart from other people who have access to UPSI.

Sebi said an insider can also include a person who is in possession or has access to UPSI. Under the new regulation, immediate relatives will be presumed to be connected persons, with a right to rebut the presumption.

This means now the onus will be on the connected person to prove that they were not in possession of the price-sensitive information.

“The new insider trading regulations are a welcome step,” said Vidya Rajarao, partner, forensic services at Grant Thornton India.

“They have broadened and clarified the definition of ‘connected persons’ and harmonised our rules with international rules. The requirement to file expected trading plans with the regulator is one example of harmonisation,” she said. A connected person can be someone who is or has during the six months prior to the concerned act has been associated with a company, directly or indirectly.

To protect the interest of investors, companies would now be mandatorily required to disclose UPSI at least two days prior to trading in case of permitted communication of such information.

Besides, communication of such information is prohibited except in instances of legitimate purposes or for discharge of legal obligations.

“However, on enforcement, the regulations are silent on the subject of wiretapping and recording, which are proven tools to combat insider trading, especially since such tools are widely used in the US market,” Vidya Rajarao of Grant Thornton said.

UPSI has been defined as information, which are not generally available and which may impact share price. “The definition of UPSI has been strengthened by providing a test to identify price-sensitive information, aligning it with the listing agreement and providing a platform for disclosure. Earlier, the definition of price-sensitive information had reference only to the company, but now it has reference to both the company and securities,” the Sebi release said.

“After a gap of a year, the new regulations have indeed made their way. While one would need to see the detail of departures from the Sodhi committee recommendations, it is noteworthy that the recommendation on providing notes on objectives of the provisions seems to have been accepted. The much-needed reform in disclosure obligations too seems to have been effected,” says Somasekhar Sundaresan, partner, J Sagar Associate.

Sebi also eased the delisting regulations for companies seeking to delist their shares from stock exchanges. The reverse booking building route will continue for determining price for a delisting offer.

Delisting would now be considered successful only when the shareholding of the acquirer together with the shares tendered by public shareholders reaches 90 per cent of the total share capital of the company. The other condition is that at least 25 per cent of public shareholders, in demat form, have to tender shares in the reverse book building process. The market regulator said that a promoter or promoter group would be prohibited from making a delisting offer, if any entity belonging to the group had sold shares of the company in the six months prior to the date of the board meeting, which approves the delisting proposal.

The timelines for completing the delisting process has been reduced from 137 calendar days (approx 117 working days) to 76 working days. Companies can now use the stock exchange platform for offers made under delisting, buyback and takeover regulations.

In order to help smaller companies to delist their shares from the bourses, Sebi said companies whose paidup capital does not exceed Rs 10 crore and whose networth does not exceed Rs 25 crore are exempted from following the reverse book building process.

“It is a good move, as many thinly-traded companies will be able get out of the market. The new delisting regulation will facilitate the process,” said Shailesh Vishnubhai Haribhakti, who serves as the chief executive officer and managing partner at Haribhakti Group.

The Sebi board approved the new listing regulation, which seeks to convert the listing agreement that govern listed companies into a regulation.

The article appeared in the Financial Chronicle. The article can be found here.