In a major decision, the Securities and Exchange Board of India (SEBI) has permitted transactions of offer for sale (OFS) and rights entitlement during the trading window closure period.
As per norms, listed companies have to use the trading window to monitor transactions, to prevent insider trading.
"It has been decided that trading window restrictions shall not apply in respect of OFS and RE transactions carried out in accordance with the framework specified by the Board from time to time," said the SEBI circular.
Sonam Chandwani, Managing Partner at KS Legal & Associates, said that listed companies, intermediaries and fiduciaries who handle unpublished price sensitive information would no longer be required to maintain a trail of such information flow digitally from such transactions.
"In a welcome move from the regulator, designated persons and immediate relatives would herein not be restricted to trade in such securities even when the trading window is closed," she said.
In another circular, the securities market regulator has said that listed companies, intermediaries and fiduciaries shall promptly inform the bourse regarding violations relating to code of conduct prescribed under the insider trading regulations.
The concerned companies have to inform the exchange in a prescribed format.
Chandwani said: "The shoddy state of insider trading laws adversely impacts financial circles and its stakeholders. The circular aims to ramp up the passage of information to the right authority and increase the quantum of investigations."
She added that the SEBI Act and Companies Act penalise insider trading transactions, if and when found guilty, and realising the importance of prevention in such cases, the SEBI's circular is a step in the right direction by banking on the "abstain theory" which necessitates disclosure of any violations.
This theory is applicable to directors, officials, employees or other associated or connected persons and is likely to serve as a deterrent, thereby flagging and uprooting the crime at its source, she said.
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