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Markets Regulation
India toughens insider trading controls
From the Financial Times of Wed, 19 Nov 2014 16:20:54 GMT
U.K. Sinha, chairman of the Securities and Exchange Board of India (SEBI), attends the Asia Financial Forum in Hong Kong, China, on Monday, Jan. 16, 2012. Transparency and impartial access are required for over-the-counter derivative trading, Sinha said. Photographer: Daniel J. Groshong/Bloomberg *** Local Caption *** U.K. Sinha©Bloomberg

Upendra Kumar Sinha, chairman of the Securities and Exchange Board of India

The Indian markets regulator has approved tough new regulations on insider trading as part of an effort to shake off the country’s reputation for widespread securities fraud.

As part of a long-awaited overhaul, the Securities and Exchange Board of India has widened its definition of an “insider” and strengthened its definition of “unpublished price-sensitive information”.

“I would think the rules are stricter than most countries – enforcement is of course a different issue,” said Sandeep Parekh, founder of Finsec Law Advisors. “You can’t possibly catch every case of insider trading.”

A person “connected on the basis of being in any contractual, fiduciary or employment relationship” can now be counted as an insider, according to Sebi. It also has introduced a test to identify unpublished price-sensitive information, which makes reference to securities as well as individual companies.

The new regulations are based on recommendations published late last year as part of a push to crack down on insider trading.

Upendra Kumar Sinha, Sebi chairman, has previously admitted that India’s laws are widely considered less effective than those of other nations. International institutions, he stressed, would not be targeted as Sebi toughens its stance against irregularities.

“There is no desire on our part to go on an onslaught against foreign investors. On the contrary, Sebi has taken a number of steps to make the investment experience more pleasant,” Mr Sinha said in an interview with the FT earlier this year.

In particular, new safeguards that allow inside information to be exchanged in the midst of a legitimate business transaction are likely to be welcomed by domestic investors in India, where accusations of insider trading have been common.

“People used to be mortally scared,” Mr Parekh adds. “They wouldn’t be able to do proper due diligence – it had a serious real world impact.”

Last year Sebi was handed new powers by India’s cabinet, allowing the regulator to access data on telephone records of suspects when investigating cases of insider trading. That led to the regulator demanding penalties of Rs204m ($3.29m) in cases relating to insider trading rules, up from Rs18.4m in the previous 12-month period. Even so, Sebi is still widely criticised for the slow pace of investigations and for delivering few prosecutions in this area.

In a rare show of strength this June, Sebi temporarily banned Factorial Capital Management, a small Hong Kong-based hedge fund, amid allegations of insider trading.

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