Sebi's key policy proposals for 2018-19 to escalate war on insider trading

The Securities and Exchange Board of India (Sebi) is set to intensify its drive against individuals who misuse unpublished price-sensitive information (UPSI) to make illicit gains from the stock market.

Trading based on UPSI is among the most serious offences in the stock market. Sebi has stepped up on improving its surveillance mechanism after prescient messages, related to the financial results of several blue-chip companies, including Axis Bank, HDFC Bank and Tata Motors, were being circulated on WhatsApp.

The regulator is working on a framework to tackle this menace. “It is proposed to introduce measures to address the issue of major announcements by listed companies so as to reduce the element of uncertainty in the market and to dis-incentivise misuse of UPSI by insiders,” said Sebi in a memorandum to its board on policy proposals for 2018-19. The board note was reviewed by Business Standard.

Strengthening of rules governing insider trading is among the key proposals in the agenda set by Sebi for 2018-19, along with making improvement to the Prohibition of Insider Trading Regulations (PIT) and Prohibition of Fraudulent and Unfair Trade Practices (FUTP) regulations.

According to sources, Sebi is planning to use analytical and statistical tools, such as artificial intelligence, to establish the link between those passing sensitive information and the ones trading based on it.

Sebi is considering making changes in the legal framework to mandate market intermediaries, such as stock exchanges and brokers, to carry out necessary surveillance of client trading activity.

Sources said that brokers could also be asked to ascertain the exposure of big clients prior to and after big corporate announcements.

Securities and Exchange Board of India ( SEBI )