21 May 2013

Insider trading laws - comments to SEBI

We sent out our views today on the proposed new insider trading norms to the high powered committee set up by SEBI. The views  in brief centre around the following three points:

1. Insider trading prohibition should be restricted to dishonest and fraudulent conduct not legitimate business. Today even investment post due diligence can be termed as insider trading.

2. For there to be  insider trading, there should be  an insider with access to information. The 'parity of information rule' which was never intended has been introduced. This does  violence not  only to the basic origins of insider trading (which arose out of the anti-fraud rule in the US),  but also  does violence to the statutory provision in the SEBI Act.

3. Outside information should be excluded from the prohibition. A company doing a hostile acquisition which has no access to inside information should never be charged with insider trading. Similar reasons as 2.

Note: Many people believe in the 'parity of information' rule. Here is an analogy, if you do. Imagine a Rs. 100 rupee note lying on the road and you pick it up. Now imagine another situation where a person steals another person's money by picking his pocket.  The former  is the parity rule,  unfair but not illegal, the latter is  the insider trading prohibition, both unfair and illegal.

1 comment:

Ab said...

In your point 2, would you include outsiders who trade in the shares of a company on the basis of UPSI that he is privy too? A la-VN Kaul of Ranbaxy scenario....

Again, wasn't it a situation like that resulted in a large