The Securities and Exchange Board of India (SEBI) unveiled new proposals on Wednesday, broadening the scope of who can be held liable for insider trading violations, as it steps up its fight against securities fraud.
India's financial market regulator plans to include company employees, directors and their immediate relatives and other stakeholders such as founders, handling market sensitive information under its purview.
Under current rules only senior executives are liable for trading violations.
SEBI has long sought greater powers to investigate securities fraud, which many analysts say is undermining confidence in the stock market, particularly among retail investors.
In May Prime Minister Manmohan Singh urged SEBI to root out the "disease of insider trading" from stock markets.
Officials with access to sensitive information will also be required to submit planned trades in company shares ahead of time to resolve any potential conflict of interest.
The new proposals also mandate that every listed company and market intermediary formulate a code of conduct to regulate, monitor and report trading in securities by its employees or connected persons.
Trades by stakeholders, employees, directors and their immediate relatives would need to be disclosed internally to the company.
J.N. Gupta, a former SEBI executive director who now runs proxy advisory firm Stakeholders Empowerment Services, said the new proposals could be effective in curbing insider trading.
"There was always a problem in defining an 'insider', which was a loophole people used exploit to go scot-free because they would not come into the narrow definition of insider," he said.
SEBI's previous attempts at tackling insider trading have often ended up in long-drawn litigation or have been settled for relatively small fines without yielding any criminal conviction.
Earlier this year India's government extended SEBI's powers, allowing it to monitor investors' records of phone calls, but not the calls themselves, and conduct searches at companies suspected of wrongdoing.
Last month SEBI said it would empower the country's exchanges to enforce rules on corporate disclosures at listed companies.
"As usual the challenge will remain in enforcing those regulations," said Gupta at Stakeholders Empowerment.
"In that regard SEBI's new powers to track telephone records will help up to a certain extent."