Relaxations in Insider Trading

Context:

• Recently, the Securities and Exchange Board of India (SEBI) proposed relaxations to enable company insiders to trade in securities, who are in possession of unpublished price-sensitive information.

SEBI Proposes Easing Trading Plans for Company Insiders

Facilitating Adoption of Trading Plans: It recommended reducing the minimum cooling-off period between the disclosure and implementation of the trading plan from six months to four months.

• Doing Away with the Blackout Period:  A blackout period is a time when certain people are prevented from buying or selling shares in their company. 
• Reducing the Minimum Coverage Period: SEBI has proposed reducing the minimum coverage period requirement to two months from twelve months.
• Personal Details Disclosure: The insider should make separate filings for the stock exchange (with personal details) and for the public (without personal details).
• Other Recommendations: 
  • Increase flexibility during trading plan formulation. 
  • Include disclosure of the trading plans to stock exchanges to be done in two days from the date of approval.
  • Applicability of contra-trade provisions on trades executed under the trading plan

What is Insider Trading?

• Insider Trading: It involves trading in a public company’s stock or other securities by someone with non-public, material information about the company. 
• Insider: She/He is a person who is a part of the company whose stocks they are trading. 
  • They may or may not possess confidential non-public knowledge regarding the firm.
• Non-Public Material Information: An information that could substantially impact an investor’s decision to buy or sell a security that has not been made available to the public.
• Preventing Insider Trading: To promote fair trading, SEBI has prohibited the firms to purchase their own shares from the secondary market.

News Source: Indian Express