SEBI Proposes Tightening Insider Trading Rules by Extending Trading Window Closure

Markets regulator Securities and Exchange Board of India (SEBI) proposed on Friday an extension of the automated closure of trading windows ahead of financial result declarations to the immediate relatives of designated persons of listed companies.

This move, detailed in a consultation paper, aims to prevent inadvertent non-compliance with insider trading rules.

Background of the Framework

SEBI initially introduced a framework in August 2022 restricting trading by depository participants during the trading window closure period by freezing the Permanent Account Number (PAN) at the security level. This freeze is carried out by stock exchanges and depositories based on information provided by the listed companies.

At the start, the framework applied only to companies that were part of benchmark indices like the Nifty 50 and Sensex. Later, in July 2023, SEBI expanded the scope of this framework to include all listed companies. In the first phase, it was applied to designated persons of all listed companies, significantly reducing compliance requirements for listed entities and minimising inadvertent trading during the trading window closure.

Proposal to Extend Framework to Immediate Relatives

Given the success of the framework in ensuring better compliance, SEBI now proposes extending it to immediate relatives of designated persons. Immediate relatives are defined as a spouses, parents, siblings, and children of designated persons or their spouses. These relatives are considered to be financially dependent on the designated persons or consult them for decisions related to trading in securities.

SEBI’s consultation paper emphasised that the extension would further prevent non-compliance and tighten controls over insider trading practices. The regulator stated that “designated persons and their immediate relatives shall not trade in securities when the trading window is closed.”

Trading Window Closure Details

The trading window typically gets closed when the compliance officer determines that a designated person or a group of such persons is likely to possess unpublished price-sensitive information (UPSI). The closure is generally imposed on securities to which such UPSI relates.

Under insider trading regulations, the trading window remains closed from the end of every quarter until 48 hours after the declaration of financial results.

Public Comments Sought

SEBI has opened the floor for public comments on the proposal and has set the deadline for submissions as February 28. If implemented, this change would further solidify the regulatory framework aimed at preventing insider trading in the Indian securities market.

Conclusion

The proposed extension to include immediate relatives in the automated trading window closure scheme is part of SEBI’s ongoing efforts to tighten the monitoring of insider trading practices and ensure compliance across a broader spectrum of individuals related to designated persons in listed companies.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.