Insider trading refers to the buying or selling of a public company’s stock or other securities by individuals who have access to non-public information about the company. To maintain fair trading practices, the Securities and Exchange Board of India (SEBI) regulates insider trading activities in India.
Established in 1992, SEBI aims to protect investors and foster the development of the securities market in India. It enforces the SEBI (Prohibition of Insider Trading) Regulations, which were first introduced in 1992 and have since been amended to reflect evolving market conditions. These regulations are crucial for preventing insider trading and ensuring fairness for all investors.
In a recent effort to strengthen the regulations around insider trading, SEBI expanded the definition of “connected persons.” The revised definition now encompasses:
Furthermore, the term “immediate relative” has been replaced with “relative,” broadening the definition to include in-laws and spouses of children, among others. This change aims to account for a wider range of relationships that could access or influence UPSI.
These amendments aim to enhance the scope and enforcement of insider trading regulations by encompassing a broader network of individuals who may possess or influence sensitive information. The ultimate goal is to improve market integrity, increase transparency, and ensure fair trading practices.
By expanding definitions and tightening compliance requirements, SEBI seeks to deter insider trading effectively and ensure that the securities markets function fairly and efficiently. These changes demonstrate SEBI’s commitment to adapting its regulatory framework to the complexities of modern financial markets, safeguarding investor interests, and maintaining trust in the Indian securities market.
Q1. What is insider trading?
Answer: Insider trading is the buying or selling of a company's stock by individuals with access to non-public, sensitive information about the company. It is regulated to ensure fair trading practices.
Q2. Who regulates insider trading in India?
Answer: The Securities and Exchange Board of India (SEBI) regulates insider trading activities to protect investors and maintain market integrity.
Q3. What are the requirements for insiders under SEBI regulations?
Answer: Insiders must disclose trades exceeding certain thresholds and cannot trade during specified closed periods, especially around financial announcements, to ensure transparency.
Q4. How has the definition of connected persons changed?
Answer: The definition now includes partners, employees, and individuals sharing a household with a connected person, broadening the scope of relationships monitored under insider trading regulations.
Q5. What is the purpose of SEBI's insider trading regulations?
Answer: The purpose is to prevent insider trading, enhance market integrity, and ensure that all investors have a fair opportunity to trade based on publicly available information.
Question 1: What is the primary role of SEBI in the context of insider trading?
A) Enforcing financial penalties
B) Protecting investors and regulating the securities market
C) Facilitating stock trading
D) Managing public companies
Correct Answer: B
Question 2: What term has SEBI replaced with "relative" in its regulations?
A) Immediate relative
B) Connected person
C) Insider
D) Public shareholder
Correct Answer: A
Question 3: Who must disclose trades under SEBI regulations?
A) Only company shareholders
B) Insiders with access to UPSI
C) All employees of a company
D) Government officials
Correct Answer: B
Question 4: What is UPSI?
A) Unpublished price-sensitive information
B) Universal price-sensitive information
C) Unregistered public securities information
D) Unrestricted price-sensitive information
Correct Answer: A
Question 5: What is a key requirement for insiders during financial result announcements?
A) They can trade freely
B) They must disclose all trades
C) They cannot trade
D) They must report to the government
Correct Answer: C
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