SEBI's New Insider Trading Regulations: What You Need to Know

In a significant move that could reshape the landscape of insider trading regulations, the Securities and Exchange Board of India, or SEBI, is looking to widen the scope of who qualifies as a ‘connected person’ under its insider trading rules.

This change aims to close existing loopholes and ensure fairer trading practices in our markets.

First, let's break down what insider trading actually means.

Insider trading happens when someone with access to non-public, price-sensitive information about a company uses that information to make a profit or avoid a loss in the stock market.

Imagine if a company's employee knew in advance about an upcoming product launch that would boost the company's stock price and then bought shares before the news went public. That's insider trading, and it's illegal because it gives an unfair advantage over other investors.

SEBI's proposed changes focus on expanding the definition of "connected persons" and "relatives." Previously, insider trading regulations covered immediate relatives such as a spouse, parents, siblings, and children, especially if they were financially dependent or consulted on trading decisions.

However, SEBI now wants to replace "immediate relative" with a broader term: "relative." This new definition would cover a wider array of family members, including spouses, siblings, parents' siblings, and even in-laws, along with their spouses. The idea is to capture anyone who might have close ties to someone with access to unpublished price-sensitive information, or UPSI.

Why the Change?

SEBI believes that some people not currently covered under the existing rules may still possess UPSI due to their close relationships with key company officials or employees.

These “deemed connected persons” are considered in positions where they could potentially engage in insider trading due to their proximity to sensitive information.

SEBI also suggests adding six new categories to the definition of connected persons: firms, partners, or employees linked to a connected person; individuals advising a connected person on trading; corporations acting on a connected person's advice; people sharing a household with a connected person; those with significant financial relationships with a connected person; and members of a Hindu Undivided Family related to a connected person.

How will this impact traders and employees?

These changes could mean greater scrutiny of personal and professional relationships for traders and employees of listed companies, leading to more extensive disclosures and stricter compliance measures.

That said.

SEBI will retain the current definition of 'immediate relative' for certain disclosure requirements under the Prohibition of Insider Trading (PIT) Regulations to avoid overwhelming companies

SEBI is inviting public comments on these proposals until August 18th, underscoring its commitment to enhancing market integrity and protecting investors.
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[nsemirror]

If the traders follow all the rules (punishments) by SEBI(Villain) then he won't stop making the rules again.(Due to Khusli).In gist(Elites are forced to be more financial independent (Vosdi Principles). SEBI used to make tatti on faces of retail traders.(Ugly kid)