After SEBI's quarterly board meeting, held on September 30, 2024, the regulator has, strengthened its anti-insider trading rules i.e. the SEBI (Prohibition of Insider Trading) Regulations, 20151 (the "PIT Regulations"), by broadening the definitions of 'connected persons' and 'immediate relatives'. The PIT Regulations, which came into effect in May, 2015, were designed to level the playing field for all investors by preventing insider trading activities. However, lately, there has been growing cases of individuals & entities exploiting their access to UPSI to gain an unfair advantage in the securities market.
Presently, under the PIT Regulations, connected persons are those individuals (and/or entities) who may have access to unpublished price-sensitive information (UPSI) of a company due to their association or employment, or by virtue of being an immediate relative of a connected person, such as spouses, parents, siblings, and children. To further strengthen the regulations, SEBI has now undertaken the following changes:
- Amending the provisions relating to connected persons by including:
- A firm or its partner or its employee in which a 'connected person' is also a partner: This expansion aims to capture individuals who may have indirect access to UPSI through their association with a connected person.
- A person sharing household or residence with a 'connected person: This amendment acknowledges that personal information can be shared informally within close living arrangements. However, it leaves room for ambiguity regarding who can be considered a part of this arrangement, as the definition is not expressly specified.
- Additionally, making the provisions pertaining to person deemed to be a 'connected person' applicable to the newly inserted definition of 'relative' instead of 'immediate relative':
The term 'immediate relative' has now been substituted with the term 'relative' which expands the earlier relations (of spouses, parents, siblings, children) mentioned under 'immediate relative' to now also include:
- spouse of the person;
- parent of the person and parent of its spouse;
- sibling of the person and sibling of its spouse;
- child of the person and child of its spouse;
- spouse of the person mentioned at (iii) above; and
- spouse of the person mentioned at (iv) above.
The SEBI's recent amendments to the PIT Regulations aims to bolster its ability to identify and investigate potential insider trading activities.' This is expected to have a positive impact by increasing regulatory oversight, preventing insider trading, and promoting fair and equitable market conditions for all investors.
Footnote
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