The Hindu Business Line : ‘Insiders’ have to surrender gains from short-term deals

Home Page - Stock Markets
Markets - Economic Offences
Industry & Economy - Regulatory Bodies & Rulings
‘Insiders’ have to surrender gains from short-term deals

Draft SEBI guidelines set transaction time span at 6 months

Our Bureau

Mumbai, Jan. 1 Short-term profits from any share transactions made by an ‘insider’ will have to be surrendered to the company, according to draft regulations on insider trading issued by the Securities and Exchange Board of India on Tuesday.

‘Insiders’ associated with a company whose buy and sell transactions in that company’s shares happen within a time span of six months will have to surrender any profits made to the company itself, said SEBI’s proposals for “short swing profit” regulations.

“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 (short swing profits),” said SEBI.

The regulator argued that insiders are assumed to have a long-term investment horizon in the company and are therefore “not expected to make rapid buy or sell transactions.”

Access to info

Such transactions would be based on at least some level of superior access to information whether material or not, said SEBI.

The regulator described two possible approaches with regard to who could be considered an insider for the purpose of surrender of short swing profits.

One proposal is that ‘designated insider’ should capture within its ambit all key management personnel by whatever name called, all directors of the company, and all officers who are the beneficial owners, directly or indirectly, of 10 per cent or more of any class of equity securities.

The second alternative is that in addition to officers of the company, all beneficial owners in excess of 10 per cent holding, singly or in concert, also be implicated in the definition of ‘designated insider’.

The concept of ‘designated insider’ is intended to be narrower than the existing concept of what constitutes a deemed insider and broader than what is known as an insider under the present regulations, said SEBI.

The mere fact of the trade will be sufficient for surrender of “short swing profits”. Liability would be imposed without any necessity for guilt or wrongfulness to be established. Conversely, a direction to surrender such profits shall not necessarily imply any form of guilt.

Exempted deals

Certain transactions, including those in shares related to employee benefit plans, are proposed to be exempted. Other transactions considered for exemption are those approved by a regulatory authority, genuine gifts and inheritances, and those arising from mergers and acquisitions.

SEBI has invited public comment on the consultative paper.

Related Stories:
Inside of insider trading

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page