In a move to curb insider trading, the Securities and Exchange Board of India on Tuesday proposed that an insider in a company should surrender profits made in any equity-based securities transactions of the company, if both the buy and sell side of the transaction are entered into within six months of the other.
The proposal, which was made in a draft consultative paper put out on Tuesday by the regulator, also extended its purview to transactions in the shares of parents or subsidiaries of the insider.
An insider is defined as all key management personnel, all directors of the company, all officers of the company who are beneficial owners, directly or indirectly, of ten per cent or more of any class of equity securities ("ten per cent owner"). Officers and beneficial owners of the company holding in excess of 10 per cent, singly or together, would also come under this definition.
The new stipulation, once approved, will come under the Sebi (Prohibition of Insider Trading) Regulations, 1992.
The proposed regulations will check insiders having greater access to price-sensitive company information from taking advantage of the information for making 'short-swing profits' or short-term profits, said the draft paper.
The surrender of profits in such short-swing transactions will come into effect regardless of the intent of the person once the two things are established.
"First is the fact of being an insider or a "designated insider." And second, the fact that the same securities were bought and sold within six months of each other. Merely the fact of the trade will be sufficient to take action, that is, the direction to hand over such profits to the company. Where there is a delay, interest may be payable by such insider to the company," said the paper.
The draft regulations that are open for public comments till January 21 also propose to adopt the last-in-first-out (LIFO) method for determining the six-month period between trades.
However, the regulator has exempted certain transactions such as those "approved by a regulatory authority, employee benefit plans, bona fide gifts and inheritances, mergers and acquisitions." Certain securities may be altogether exempted from this.
Crackdown
- An insider is defined as all key management personnel and all directors of a company who directly or indirectly own 10 per cent or more of any class of equity securities
- The draft regulations are open for public comments till January 21
