New ‘Insider Trading’ norms kick in; revamp after 23 years!

When you begin to think greed is god, it is better to remember the case of Rajat Gupta – an American businessman with Indian roots who was known for his smart business moves, as much as his jail sentence has left a lesson for those involved in trading. After having been a stupendous success story, Rajat Gupta is currently serving two year sentence in American Federal Prison for ‘insider trading’.

Indian government, after a long haul of nearly 23 years, has decided to take a relook at the norms for insider trading and make them more stringent so as to encourage fair play for all those involved in the stock market.

The new insider trading norms that come into effect from today, with far stricter provisions in many areas where there was a fair amount of ambiguity. The good news is, the revised and revisited provisions are on par with those in the US or UK. Really, India has finally woken up to the concept that ambiguity and unrevised laws since long, can harm the Indian markets in these days of global economy and improved reach.

Capital Markets Regulator, the Securities and Exchange Board of India (SEBI) has created space to use the ‘prearranged trading plans’ that’s ubiquitously used in the US. However, any person who has remote knowledge of this through being an ‘insider’ or ‘connected person’ to this, certainly cannot revoke it or have numerous trading plans, whether over-lapping or not.

India’s approach to evolving this modified frame work can be termed rather ‘conservative-innovative’ with least space for errors. According to Somasekhar Sundaresan, who was among the 18-member high-level committee that was set up to review and draft new regulations for India, the new framework is an evolution that will leave blood stains out of the markets. Partner at J Sagar Associates Law Firm, Sudaresan is a prominent name in the field of Financial Law and Financial Sector regulatory practice in India.

“Yes, SEBI has opted for this approach. In the US, you can write and later cancel the plan. But, we have made it a bit water-tight in India. This is an innovation and we would like to view it that way. You can opt for a trading plan, alright. That’s optional and voluntary. But, what is mandatory is to follow it up without any alterations. What do you get in return? The satisfaction of having indulged in legitimate trading; no risks as far as law or legal aspects are concerned. In other words, there’s no blood on your hands. You are as clean as you got into it in the first place,” says Sundaresan.

The new framework has come into existence, exclusively to control the insider trading menace. The new set of norms make way for strict penal actions for transactions that are illicit, illegal or seem to have escaped the purview of law. Will this make market a difficult place? Yes and no.
Insiders who are liable to possess UPSI (Unpublished Price Sensitive Information) have to formulate prescheduled trading plans and proceed accordingly.

With the new set of norms, will provide protection to genuine trades and leave them aside. There is better clarity on concepts and definitions under the new set of norms that was much needed. They can be found under the name ‘Prohibition of Insider Trading Regulations 2015’. This would make matters better and easier even for those who are beginning to trade in the markets.

What prompted SEBI was the fact that insider trading was happening at much larger scale than stray individuals making money out of the loopholes in the 1992 framework. Just as India enters the phase of turning into a global economy leader, and being in the ‘sweet spot’ looking forward to sound economic future assuming a lead role, markets were the first place where the norms had to be made more stringent in order to keep the space clean for all the players and keep those away who were here for some mischief. Because a threat to economy of a country is best managed through markets and India had to reduce chances of this happening at whatever level through individuals or companies.