The Securities and Exchange Board of India (SEBI) expanded the definition of “connected persons” who have access to price sensitive information to tighten noose on insider trading.
The market regulator also came down heavily on speculative trading and introduced a stricter framework for futures and options (F&O) trading effort in an effort to curb losses for retail investors. The latest rules include increasing the minimum contract size and mandating upfront collection of option premiums.
The markets regulator in a recent study said 93 per cent traders in the F&O contracts loses money. It also said that over 75 per cent of those who have lost their money in F&O trading had an annual income of less than Rs 5 lakhs.
Acting tough on insider trading, in a decision ratified by the board, a connected person would now include “a firm or its partner or its employee in which a ‘connected person’ is also a partner,” and “a person sharing household or residence with a ‘connected person.”
The market regulator amended its Prohibition of Insider Trading (PIT) Regulations of 2015 to expand the ambit of relatives covered under the securities law, by replacing the word “immediate relative” with “relative”. As per the new norms, relatives will include a person’s spouse, their parents and in-laws, siblings of the person and the spouse and those siblings’ spouses, child of person and child of spouse, and those children’s spouses.
SEBI said the changes aim to facilitate effective investigation and enforcement against insider trading.
“There are persons who have access to unpublished price sensitive information (UPSI) or could be reasonably expected to have access to UPSI but are not currently included in the definition of ‘connected person’ and immediate relative,” said the SEBI Board member.
The regulator further added the definition would not impact the provisions of the code of conduct, which were applicable to designated persons and their immediate relatives, and that the new amendments would not warrant any “additional disclosures” and decided upon a host of proposals and regulations to improve ease of doing business.
In another set of regulatory changes, SEBI proposed that offshore derivative instruments (ODI) and segregated portfolios of FPI will be treated on a par with FPIs in terms of regulation.
The markets watchdog also prescribed norms for violations and caps on the instruments used in FPIs use to issue ODIs. “The Promissory Notes (P-Notes) or offshore derivative instruments (ODIs) so far had more relaxed regulations compared with other FPIs, making it relatively easier for financial irregularities and frauds,” said SEBI Board official.
The regulator also introduced a new asset class “to bridge the gap between mutual funds and portfolio management services in terms of flexibility in portfolio construction,” and regulations for the asset class.
