SEBI changes guidelines to stop insider trading
05 Dec 2008
SEBI has tightened insider trading norms to plug several loopholes, which had existed in the insider trading regulations currently in force.
The market regulator has also introduced a new clause that bars people under the definition of ''insiders'' from taking positions in derivative transactions in the shares of a company at any time.
Moreover, SEBI has now made it compulsory for designated insiders to hold their investments through initial public offers (IPOs), for a minimum period of 30 days.
These changes have broadened the definition of an insider and will stem the insider trading that is prevalent in the stock markets.
| Key changes | Old regulation | New regulation |
| Definition of deemed insider | A deemed insider is someone who was or is connected with the company and had access to unpublished price sensitive index information. | A deemed insider can be anyone who has access to unpublished price sensitive information. The person need not have a connection to the company to be held liable for insider training. |
| Compliance | The model code as laid down by SEBI has to be followed as much as possible. | The companies have to apply this model code without diluting it in any manner. |
| Period of holdings | Directors, officers and designated employees who buy or sell shares can't carry out a reverse transaction within one month. | Directors, officers and designated employees who buy or sell shares can't carry out a reverse transaction within six months. |
| Penalties | Unjust gains made by an insider were to be surrendered to the company. | SEBI will proceed against those violating the rules on the basis of its statute book. |