Taking a cue from the new investor-friendly Companies Act, SEBI has been engaged in a review and overhaul of many of its own regulations dealing with corporate governance and investor protection in recent months. Its Board meeting on Wednesday made changes to three critical regulations affecting investors – preventing insider trading, enforcing the listing agreement and firms seeking delisting.

Of the three changes, the one that is likely to have the most wide-ranging impact on investors is the decision to convert SEBI’s listing agreement with companies into a full-fledged regulation, which would have greater legal enforceability. Though the Indian bourses feature the largest universe of listed companies in the world, a good number of these companies routinely default on making even basic disclosures to investors – on their quarterly results, balance sheets and shareholding patterns. Not only are the bourses usually ineffective in curbing such defaults, such slippages eventually lead to unscrupulous promoters vanishing with investors’ money. Well over a 1,000 listed firms are on the vanishing companies list on the bourses.

Yet SEBI has found it difficult to impose stringent penalties on such firms because the listing rules were mainly in the nature of a ‘contract’ between the company and the exchange, lacking a strong legal backing.

SEBI’s regulations preventing company insiders from trading on unpublished price-sensitive information are already far stricter than those in developed markets such as the US. Yet the regulations are old, dating back to 1992 ,and were in need of an overhaul as a patchwork of amendments to the rules over the years had led to inconsistencies and drafting errors. Two changes have also been added in, in the new regulations which should help investors.

One, a more sweeping definition of the term insider has been adopted (apart from employees, directors, people ‘connected’ with the company by way of a fiduciary or contractual relationship have also been defined as insiders). Two, instead of the present system of insiders informing their compliance officer before trading on stock and adhering to a complicated ‘trading window’, they have been asked to publicly disclose their trading plans. Both changes may lead to a more water-tight insider trading law.

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