SEBI Proposes Changes to Insider Trading Rules Definition

The Securities and Exchange Board of India (SEBI) has proposed changes to insider trading rules, including the redefinition of 'connected person' and 'relative.' The regulator aims to avoid increasing compliance requirements while expanding the scope to include more categories of deemed connected persons. Public comments are open until August 18.

The Securities and Exchange Board of India (SEBI) proposed several changes on Monday to the definitions of 'connected person' and 'relative' under its insider trading regulations.

The regulator recommended the removal of the 'Note' from the term 'immediate relative' and retained its definition under the Prohibition of Insider Trading (PIT) Regulations to avoid additional compliance burdens. Current disclosure requirements for promoters, directors, and designated persons about their immediate relatives remain unchanged.

SEBI clarified that the term 'immediate relative' would be limited to disclosures and the code of conduct without introducing new disclosure requirements under the PIT Regulations. The regulator is also seeking public comments on these proposals until August 18.

Under existing rules, a 'connected person' is defined as anyone with access to Unpublished Price Sensitive Information (UPSI) due to their association with a company. SEBI now aims to include individuals who, through close relationships with connected persons, could potentially engage in insider trading.

The proposed changes will replace 'immediate relative' with 'relative' and expand the 'deemed connected persons' category to relatives of connected persons, associated firms, and those influencing connected persons through advice or instructions. Other additions include corporations directed by connected persons, individuals living with a connected person, those with a financial relationship with a connected person, and members of a Hindu Undivided Family where a connected person is the Karta or a member.

These deemed connected persons will need to prove they were not in possession of UPSI if charged under the PIT Regulations.