Market regulator may tell firms to change how they handle price-sensitive information
The market regulator is weighing tighter oversight to check leakage of privileged company information in the wake of unpublished financial results finding their way into WhatsApp groups, two people aware of the development said.
The Securities and Exchange Board of India (Sebi) is considering asking companies to frame a policy on how to handle unpublished price-sensitive information, or UPSI, and convey the policy to employees; monitor big share price changes before important events like earnings releases; conduct background checks on employees dealing with such information; identify people involved in major deals and ensure information given to junior or external teams is on a need-to-know basis; and create separate work spaces with secured access for those preparing and discussing issues that are price-sensitive.
“These measures have been suggested by some members who are part of a panel on “fair market conduct". The panel has four subcommittees and is expected to submit a report next month to the regulator, said the first of the two people cited earlier. Sebi formed the committee, led by former law secretary T.K. Viswanathan on, 1 August 2017 to review its rules on insider trading and unfair trading practices.
Sebi did not respond to an email seeking comment sent on Friday.
Yet, the regulator is still considering the possibility that the leaks could be a systemic issue, not a company-specific one.
“Close to 24 companies are under probe and in the four companies where the regulator has passed orders, the facts and circumstances are same that the leaked information mirrored the results. So, there is an assessment that it could be a systemic issue," said the first person. This does not mean these companies will be let off the hook, he added.
So far, Sebi has passed orders against Axis Bank Ltd, HDFC Bank Ltd, Tata Motors Ltd and Bata India Ltd, asking them to conduct an internal inquiry and strengthen systems.
After the order, the four companies announced they would comply with the regulator’s directive.
The regulator and the Viswanathan panel are also considering changes to the so-called model code of conduct, said the second of the two people cited earlier. The code was drafted by Sebi in May 2015, adopting a principles-based approach, moving away from the previous tick-box approach. All the companies then drafted new policies based on the code, including Axis Bank, HDFC Bank and Tata Motors. The code includes the principles a company must follow to prevent insider trading and leakage of price-sensitive information.
“This (rule changes) also assumes importance as most of the companies under (WhatsApp) probe have so far not identified the source of the leak," he said.
In the case of Bata India, the firm has informed Sebi that it has confirmations from auditors and employees that they did not discuss the financial results with any third party.
In a report on 9 March, KPMG India said companies need to control the number of employees with access to privileged information, while junior employees privy to such confidential data should also be kept under the scanner.
According to Mukul Shrivastava, partner, fraud investigation and dispute services, EY India, companies need to identify, relook at or reinvent their internal policies to mitigate leakage of price-sensitive information.
“Some of the questions they need to ask themselves include—who all have access to sensitive information? Where does it exist in a digital form? Are the systems secure? Have the employees been sensitized/trained on UPSI being handled by them? Have they understood the sensitivity? On the policy front, they need to tighten norms on prohibition of insider trading in case of violation, restrict the access of sensitive information to select employees," said Shrivastava.