Mumbai: The Securities and Exchange Board of India approved new rules on insider trading that will replace a two-decade old law as part of efforts to boost investor confidence in markets. The rules, which are based on recommendations first revealed late last year, broaden the scope of who can be held liable for insider trading violations and require company officials to be more transparent about their trading activities.
The SEBI has already acted this year to crack down on insider trading as part of efforts to attract more retail investments into Indian markets. Shares have surged to record highs on rising optimism about the government's efforts to spur a recovery in the domestic economy. "The amendment to the SEBI Act has already given certain powers to SEBI that has made the process to investigation better than before," said J.N. Gupta, a former executive director at the regulator who now runs a shareholder advisory firm.
"That combined with these new regulations would result in better compliance and enforcement than what we saw in the last twenty years."
According to the rules, announced after SEBI's board meeting, immediate relatives of senior management, other stakeholders such as founders, and third-party clients handling market sensitive information can now be investigated and held liable for disclosing market sensitive information. The rules also require companies to disclose price sensitive information to markets at least two days ahead of trading in company shares by officials, and requires senior management to establish pre-determined trading plans.
SEBI also approved changes to delisting rules, responding to concerns that current regulations make the process of buying out minority shareholders difficult and expensive. The regulator also said it has initiated a process to discuss proposed restrictions on borrowers who are classified as so-called "willful defaulters" - those borrowers who are seen as able but unwilling to pay back loans.
Under draft guidelines, "willful defaulters" could now face restrictions in accessing capital markets. The election of Prime Minister Narendra Modi earlier this year has lifted business confidence in India, and fiscal consolidation and easing pressures on inflation and the current account deficit all point in the right direction, but economists are still looking to see progress on structural reforms.
