The market regulator has proposed expanding the definition of connected persons under Sebi (Prohibition of Insider Trading) Regulations or (PIT) Regulations to include more relatives.
The regulator has proposed to substitute immediate relative with relative to cover a wider group of family members. It said relatives of a connected person would mean spouse, siblings, siblings of spouse, siblings of parents, any lineal ascendant or descendant and all their spouses.
“It has been observed that certain categories of persons who are not covered in the scope of the definition of ‘connected persons’ as per existing regulations, may also be in a position to have access to UPSI (unpublished price sensitive information) from ‘connected persons’ to a company, by virtue of their close relationship with such ‘connected persons’,” Sebi said in a discussion paper on Monday.
Such deemed connected persons, owing to their proximity and close relationship with the connected persons, are considered to be in such a position where they can potentially indulge in insider trading, the regulator said.
A connected person means a person who has a connection with the company that is expected to put him in possession of UPSI.
The regulator has also suggested including six other categories of connected persons.
1. a firm, its partner, or its employee in which a connected person specified in clause (i) is also a partner;
Clause (i) broadly includes people who are employed with the company or have a contractual or fiduciary relationship with the company in the previous six months.
2. any person on whose advice, directions or instructions, a connected person specified in clause (i) is accustomed to act.
3. a body corporate whose board of directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a connected person specified in clause (i).
4. persons sharing household or residence with a connected person specified in clause (i);
5. persons having material financial relationship with a connected person specified in clause (i) including for reasons of employment or financial dependency or frequent financial transactions;
6. a Hindu Undivided Family (HUF) where Karta or any of the member/coparcener is a connected person specified in clause (i) or a relative of connected persons specified in clause (i)
The market regulator has sought comments on the proposals by August 18.
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