Mumbai: Market regulator Securities and Exchange Board of India (Sebi) on Tuesday unveiled draft regulations aimed at checking insiders from making short-term profits.
“Such a regulation will check insiders, who have greater access to price-sensitive company information, from taking advantage of information for the purpose of making short-term profits,” Sebi said in a consultative paper on introduction of short swing profit regulations in India.
The regulator has invited public comments on the paper by 21 January.
Under the proposed regulations, the insider would be asked to surrender the profits made through trading in shares of the company as well as its parent and subsidiaries, if the purchase and sale transactions are conducted within a period of six months.
Sebi said similar regulations exist in the US that require all directors, and shareholders and officials of a company who hold more 10% of the firm’s shares to give up any profit made from the purchase and sale of securities within six months.
The regulator said it assumed that insiders have a long-term investment in the company and are not expected to make rapid buy/sell transactions, which are presumably based on at least some level of superior access to information, whether material or not.
According to the draft regulations, the insiders would include all key management personnel, directors, direct or indirect beneficial owners having at least 10% shares, alone or in concert, of the company.
The short-swing rules will automatically apply if same shares are purchased and sold by the insider within six months. It also stipulates that “where there is a delay, interest may be payable” by the insider. Under the regulations, these provisions will not apply in case of transactions approved by a regulatory authority, employee benefit plans, bonafide gifts, inheritances and mergers and acquisitions.
Sebi also said “certain securities may also be considered as exempt altogether” from the purview of the regulations.