SEBI tightens noose on insider trading

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Last Updated03/10/2024

The Securities and Exchange Board of India (SEBI) on Monday decided to expand the definition of “connected persons” who have access to price sensitive information.

In a significant move to curb insider trading, the Securities and Exchange Board of India (SEBI) expanded the definition of "connected persons" who have access to unpublished price sensitive information (UPSI).
The changes, approved by SEBI’s board on Monday, include both professional and personal relationships that could potentially lead to access to sensitive market data.

Firm Partners and Employees: SEBI’s new definition includes firms or their partners and employees if they are linked to someone classified as a "connected person."
Shared Household or Residence: Individuals who share a household or residence with a connected person will now also be included under this definition.
These changes seek to close gaps in existing regulations, ensuring that individuals who might have indirect access to UPSI are covered under insider trading prohibitions.

SEBI has amended the Prohibition of Insider Trading (PIT) Regulations of 2015, replacing the term “immediate relative” with “relative.” This broader term now includes:
- A person’s spouse, parents, and in-laws
- Siblings (both of the person and their spouse) and their spouses
- Children (of both the person and spouse) and their spouses
The expanded scope ensures that more familial relationships fall under regulatory scrutiny, helping prevent insider trading through extended family connections.

While the definition of connected persons has expanded, SEBI clarified that the existing code of conduct applicable to designated persons and their immediate relatives remains unchanged. This means that no additional disclosures are required under these amendments.

SEBI also introduced regulatory changes for offshore derivative instruments (ODIs), placing them on par with Foreign Portfolio Investors (FPIs) in terms of regulation. Notably:
- Norms for violations and caps on instruments used in FPIs for issuing ODIs were prescribed to prevent financial irregularities and frauds.
Historically, ODIs (often referred to as P-Notes) had relatively relaxed regulations, making them susceptible to misuse. SEBI’s move aims to tighten these regulations and bring greater transparency.

In a separate development, SEBI introduced a MF Lite framework with relaxed regulations compared to regular mutual fund investments. The regulator also launched a new asset class to bridge the gap between mutual funds and portfolio management services (PMS), offering greater flexibility in portfolio construction.

SEBI also made a series of decisions aimed at improving the ease of doing business, enhancing operational efficiencies while ensuring stricter regulatory oversight across financial markets.