SEBI to expand definition of ‘connected persons’ for insider trading rules

Market regulator Securities and Exchange Board of India (Sebi) has proposed expanding the definition of connected person and relative under insider trading rules.

Sebi plans to replace ‘immediate relative’ with a term covering a wider group of family members. As per its new definition of connected person, it would mean spouse, siblings, siblings of a spouse, siblings of parents, or any lineal ascendant, or descendant and all their spouses, according to a consultation paper shared by Sebi.

Such expansion of the word relative is being proposed under Sebi (Prohibition of Insider Trading) Regulations to cover several connected persons who may have access to unpublished price-sensitive information.

Insider trading means trading in a listed company’s stock by someone with unpublished price-sensitive information(UPSI) about that stock.

The market regulator has invited comments on the proposed expansion of the term relative under insider trading rules by 18 August 2024.

Sebi said in the discussion paper that it has been observed that certain categories of persons who are not covered in the scope of the definition of ‘connected persons’ as per the existing regulations may also be in a position to have access to UPSI (unpublished price sensitive information from ‘connected persons’ to a company, by virtue of their close relationship with such ‘connected persons’).

SEBI said that such deemed connected persons, owing to their proximity and close relationship with the connected persons, are considered to be in a position where they can potentially indulge in insider trading, the regulator said.

A connected person means someone connected with the company and owns UPSI.

The regulator has proposed other categories of connected persons, including a firm, its partners, or its employees, in which a connected person is also a partner or any person on whose advice a connected person would act.

It proposes to include a corporate body whose board of directors, managing director ,or manager is accustomed to act under the advice, directions or instructions of a connected person, which means any person who is or has been, during the six months before the concerned act, associated with a company, in any capacity, directly or indirectly, including because of frequent communication with its officers or by being in any contractual, fiduciary or employment relationship or by being a director, officer or an employee of the company or holds any position including a professional or business relationship, whether temporary or permanent, with the company, that allows such a person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access.

Sebi proposes to include persons sharing household or residence with a connected person or having material financial relationship with a connected person for employment or financial dependency or frequent financial transactions.