SEBI: Keeping a Check on Insider Trading During COVID 19 [CS Hera Siddiqui]


"Insider Trading" is an unethical practice resorted to by those privy to certain unpublished information relating to the Company to profit at the expense of the general investors who do not have access to such information.  The objective of the current Regulations is to prevent "insider trading" by prohibiting dealing, communicating, counselling or procuring "unpublished price sensitive information".

"The Code for Prevention of Insider Trading" as required by Regulations (the "Code") to be observed by the Directors and Designated Employees in the performance of their duties. That earlier code is now being amended to bring it in line as required under regulation 9 of the SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION OF INSIDER TRADING) REGULATIONS, 2015. The Board of Directors have also adopted the Code of Fair Disclosure for the Company and would ensure that the Management adheres to this code to make the Unpublished Price Sensitive Information of the Company would be made available to the general public as soon as it is possible for the Company to do so. The Company recognizes that strict observance of the Code is a basic pre-requisite for ensuring full confidentiality of all "unpublished price sensitive information" and to build general investor confidence and stakeholder credibility.

Keeping a check on Insider Trading during COVID 19

The corporates in order to protect themselves from the threat of SEBI investigation for insider trading or any enforcement action should take all kind of precautionary measures such as evaluating their internal controls and revising the insider trading policies of the organization, and ensure that these policies are clearly demarcating the prohibition of trading on material price sensitive information, and adequately addressing the increasing possible opportunities for such trading that might have been created due to the pandemic. This would require corporates to revise their other supplemental policies in light of their current business practices.

Not only revising policies but also, the companies must ensure that the employees are aware and abiding by such policies strictly. Further, companies should consider disseminating to their workforce clear advisory communications to remind employees of their obligation to refrain from sharing or trading on material sensitive information which are not available to the public in general and that they received through their employment in such organization. Considering the ease with which information may be disseminated among family members in a quarantine environment, company directors, officers, and employees and all stakeholders should be reminded of the substantial risks associated with insider trading, and best practices for protecting confidential information during quarantine.

Also, now that the security market regulator has come up with such proactive, detailed regulations, it would be interesting to witness if that would set the standards up for expected market conduct. SEBI has considered the interest of the investors as well as the stakeholders and has cut some slack over stringent insider trading rules amidst the COVID-19 condition to make it easier for companies to raise capital from the market. However, the regulator has also instructed the companies to maintain a structured record regarding all unpublished price information and details of people who have access to it.

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