SEBI Trains Gaze On Insider Trading

Market watchdog SEBI is not keeping any stone unturned in order to uphold the interests of retail investors. In a fresh attempt in this regard, the regulator is planning to put in place some checks on insider trading. If these regulations come in as per the plan, promoters and top executives intending to buy or sell shares of their companies may soon have to inform the market well in advance about such transactions. The SEBI is considering this move as part of an overhaul of its insider trading rules, in order to clamp down on the misuse of share price-sensitive information.

Reports suggest that a proposal to this effect has been made within a high level 19-member committee set up by the authority in April 2013 to review the country’s two decade-old insider trading regulations. If the changes see light of day, they would bring a sea change in the mid-cap as well as small-cap space.

According to the current rules, promoters and other company insiders have to make disclosures with the stock exchange within five days of such trades. The SEBI Committee opined that post-trade disclosure put minority shareholders in a position of disadvantage.

Once the rules are changed, promoters and insiders may have to specify a window of possibly upto three months before the transaction, during which they would buy or sell the shares of their companies.

The SEBI Committee is also looking at revamping the other disclosure requirements to ensure that price-sensitive information reaches the public in a more symmetric way. In addition, it is looking at optimising the regulator’s newly-gained powers, such as those of search and seizures, to crackdown on insider trading.

We, at DSIJ, are of the opinion that improving disclosure standards is a definite positive. However, instances of insider trading are often tough to pin down and prove. Thus, what is needed is for the SEBI should improve its surveillance, so that the guilty are caught.

Such malpractices are usually seen in mid-cap and especially so in small-cap companies. We firmly believe that the regulations will help retail investors, safeguarding them from management gimmicks. At any rate, it would surely be a step ahead in curbing such practices and making small-cap investments a safer bet.