In wide-ranging reforms of insider trading norms, a Sebi-appointed panel today proposed bringing in public servants handling share price-sensitive information under its purview and put the onus on the insiders to prove they have not breached any law.
The new norms, which would also apply to mutual funds and trusts issuing securities or schemes that get listed on stock exchanges, would also require companies to seek entire holdings of all employees and third-party connected persons.
Besides, all trades by promoters, employees, directors and their immediate relatives (which would cover close relatives who are either financially dependent or consult the insider in connection with their trading) would be required to be disclosed to the company.
"Simply put, the Proposed Regulations entail a prohibition on trading by insiders in securities when in possession of UPSI (Unpublished Price Sensitive Information), thus obtaining an unfair advantage," the panel said in its 74-page report submitted to Sebi.
The panel, chaired by N K Sodhi, Former Chief Justice of Kerala and Karnataka and a Former Presiding Officer of the Securities Appellate Tribunal, was set up by Sebi in March this year to review nearly two decade-old insider trading norms and included experts from various sectors.
The new norms also "entail outlawing communication of UPSI by any insider except where such communication is legitimately necessary for performance of duties or discharge of legal obligations."
Besides, definition of the term 'connected person' has been changed to "explicitly include public servants who handle UPSI relating to listed companies".
Among other proposals, whether an insider who has traded in securities is a connected person, the onus of establishing that he was not in breach of the prohibition will be on him.
Besides, the companies would be required to keep record of all holdings by all employees, while third-party connected persons, who are not employees, will also need to disclose their trading and holdings in securities of the company.
At the same time, the threshold beyond which public disclosure is mandated has been materially enhanced.
Currently, any trade of above a value of above Rs five lakh falls within public disclosure, while public disclosure is also mandatory regardless of value if the securities traded are more than 2,500 in number, or if the share represent more than one per cent of the total share capital.
In view of "materiality and relevance", it has been recommended to rationalise the trades disclosure threshold at a value of