Sebi to crack whip on insider trading
Aug 25 2014 , Mumbai
The regulator is trying to plug the loopholes in its existing regulations based on the recommendation of a committee it appointed. Under the new norms, Sebi will impose hefty penalty on offenders to deter insider trading.
It provides for heavy penalty of Rs 25 crore or three times of ill-gotten profits, whichever is higher, for the offence of insider trading. Sebi is looking at taking strong enforcement actions in high profile and glaring violations of insider trading norms.
It is revising two-decade-old insider trading regulations and is expected to take these to the Sebi board in its next meeting for final clearance.
Some of the high-profile insider trading cases taken up by Sebi include Reliance Industries and Gammon India. Sebi has also been taking action against several smaller companies.
At the same time, efforts are being made to comply with a principle of dealing more stringently with glaring violations and high-profile cases.
Also the market regulator has been given powers that will help it to probe insider trading cases like search and seizure and calling for phone details.
While the new insider trading norms are being framed as per wide-ranging reforms suggested by a Sebi-appointed panel, the regulatory body's international advisory board (IAB) has also suggested significant changes in Sebi's insider trading regulations to bring them at par with global best practices.Insider trading — dealing in securities with prior access to unpublished price-sensitive information — has been attracting regulatory attention worldwide. However, certain outdated provisions of existing norms have been misused by the offenders to escape regulatory action.
The IAB has also suggested that "heavy penalty along with naming and shaming may be used as a major deterrence to insider trading and other offences in the securities market".
Sebi was also asked to "publicise major insider trading cases through various means including in a separate section on Sebi website for easier access", while IAB also sought provisions to compensate victims, if any, of such offences.
In an action taken report on suggestions made by IAB, Sebi said that its orders are made public through various forums whenever there are major enforcement actions on fraudulent and unfair trade practices. Besides, Sebi website is also being revisited for better dissemination of information from users' perspective, Sebi said.
On dealing more stringently with glaring violations of high-profile nature, Sebi said that "efforts are being made to comply with such principle", while it has also issued internal guidelines for adjudicating officers which envisage stringent penalty for insider trading.
On heavy penalty and 'naming and shaming' measures, Sebi said that the regulations provide for heavy penalty of Rs 25 crore or three times of ill-gotten profits, whichever is higher, for the offence.
Sebi said that the orders imposing heavy penalty are put up in public domain and a press release is also issued, giving the example of a huge penalty of Rs 1,850 crore it recently imposed in the matter of the Satyam fraud. On provisions to compensate victims, Sebi said that the "nature of insider trading offence is such that it is impracticable to ascertain which shareholders had actually lost because of an offender’s trade".
While Sebi does not have power to compensate, it can disgorge ill-gotten profits, and restitution is possible from disgorgement amount. The new amendments to the Sebi Act provides for explicit power of disgorgement, while the investor education and protection fund regulations have been amended to provide for restitution, the regulator.
Rajesh Narain Gupta, managing partner at SNG & Partners said, “Under S.24 of Sebi Act there is a provision for criminal prosecution and imprisonment upto 10 years and severe penalty, if held guilty for insider trading. We need to apply this law and provision strictly. In the US, judicial proceedings in the case of Rajat Gupta was not only quick, but also Gupta has been sentenced and imprisoned, creating a great deterrence for this kind of violation. We need speedy and stricter enforcement of existing laws on insider trading.”