India’s capital market regulator doesn’t have much of a track record when it comes to insider trading cases, given there haven’t been too many prosecutions. But that is not a reflection on its competence. The world over, insider trading cases are hard to crack—even in the US where, on occasion, the FBI has been called in to assist the SEC. Securities and Exchange Board of India (Sebi) may have top class surveillance systems but it is a relative newcomer; even where the investigation has been thorough and the evidence strong, the regulator has not always had access to the best legal services. Sebi is now better armed and can access call records so should have better success going ahead. In the meanwhile, it can work on some of the recommendations of the Sodhi panel set up to revisit the regulations relating to insider trading to strengthen the law.
Among the panel’s best suggestion is that public servants and persons holding statutory positions be treated as ‘connected’ persons. Government officials are among those who frequently have access to unpublished price sensitive information (UPSI)—and, therefore, should be barred from trading when in possession of such material information. The 15-member Sodhi panel has been liberal in allowing insiders, who may possess UPSI all the year round, to come up with pre-determined trading plans, much like it is in the US. It believes that since such insiders would not have been in possession of the UPSI, at the time of drawing up the trading plan, they can be allowed to trade in line with a schedule drawn up earlier.
Companies will certainly be uncomfortable with the panel’s recommendation that the findings of any due diligence, conducted by an acquirer for a proposed acquisition without an open offer, be shared with the public two days in advance. Indeed, it is inherently unfair to ask a company or the acquirer to share competitive and sensitive information, even if the buyers plan to pick up a stake of just 10-15% and not a controlling interest. After all, listed companies do put out a fair amount of information in the public domain. While the potential acquirer should be permitted to do the due diligence, Sebi might want to rethink whether all that information needs be made available to the public. The committee has not gone into the issue of whether consent orders should be allowed to resolve insider