New insider trading norms on the anvil; Delisting to get easier

New Delhi: In its efforts to make listed firms more responsible towards investors, Sebi may announce new insider trading norms as early as next week and also revamp the listing as well as delisting regulations.

The changes are being made after taking into account suggestions made by the industry and other stakeholders -- including market entities and investors -- and are aimed at protecting the interest of minority investors without making the regulatory compliance cumbersome for the companies.

These new norms -- to check insider trading menace, to enforce better compliance to continuous listing regulations and to revamp delisting norms for a faster and easier process for those desiring to delist from the stock market -- will be put up for approval of Sebi's board in its next meeting.

Sources said that the final sets of regulations in all these areas may be in place this month itself, beginning as early as next week.

The proposed tightening of norms assumes significance in the wake of Sebi coming across cases of insider trading at not just small companies, but at big corporates as well.

Besides, another set of new regulations would help Sebi take prompter and stricter action against the entities found to be violating listing norms.

"We are revising our prevention of insider trading regulations because we have discovered cases ... Unfortunately the cases are not just from small companies but also from big ones," Sebi Chairman U K Sinha recently said.

The new insider trading norms, which would replace nearly two-decade-old rules in this area, would be substantially based on recommendations of an expert committee constituted by the Securities and Exchange Board of India (Sebi) and the suggestions made thereafter to this panel's draft proposals.

The panel, chaired by former Chief Justice of Karnataka and Kerala High Courts, K Sodhi, was set up to review the Sebi (Prohibition of Insider Trading) Regulations, 1992.

The new listing regulations would focus on dealing with possible violations of corporate governance norms by listed firms, including those about inadequate or faulty disclosures, related party transactions, anomalies in board constitutions.

Besides Sodhi panel, Sebi's International Advisory Board (IAB) has also suggested significant changes in insider trading norms to bring them at par with global best practices.

Insider trading -- dealing in securities with prior access to unpublished price-sensitive information -- has been attracting regulatory attention worldwide. However, certain outdated provisions of existing norms have been misused by the offenders to escape regulatory action.

The new norms can also put in place specific guidelines for holding of AGMs, about which Sebi Chairman recently said that there was a need for better governance practices at listed companies and shareholders' meetings should not be like "chai and samosa parties".

Sebi is also in favour of onus being put more on the promoters or the top executives, rather than the companies as a whole, when it comes to penalties.

Under the new regulatory regime, the listing agreement would be replaced by 'listing regulations'. The existing listing agreement is an agreement with companies and exchanges, but it would now have "a force of regulations" for more effective compliance.

The new delisting norms, on the other hand, would make it easier for those companies with limited trading in their shares to exit from the stock market arena. It has been proposed to considerably shorten the entire delisting process.

The current delisting regulations were put in place in 2009 and facilitates removal of the securities of a listed company from a stock exchange with promoters buying out shares held by minority shareholders.

The changes in Sebi?s delisting norms are being considered to harmonise them with other regulations, including the new Companies Act and other regulations of Sebi itself such as takeover and buyback norms.

Sebi has also received representations from industry bodies and various companies to make delisting norms easier and cost-effective for them.

The main area of concern for the companies has been the norms related to offer price at which promoters are required to buy out the shares of public shareholders.

There is a view that the process can be made easier and more cost-effective for cases when promoters are forced to delist their companies on account of factors like persistent losses, long-running trading suspension and major violations to regulations.

The grounds on which delisting are allowed include: the company having incurred losses during three consecutive years and having a negative networth, trading in shares having remained suspended for more than six months, infrequent trading for three years, and promoters or directors having been convicted for various rules with considerable penalties.

Besides, the companies are also required to get delisted in the event of their public shareholding falling below minimum threshold limits, which is 25 per cent for private sector and 10 per cent for public sector companies.

A voluntary delisting needs a special resolution to be passed by public shareholders, where votes cast in favour of the proposal requires to be at least two times the number of votes cast against it.

The company promoters are required to purchase all outstanding shares of willing shareholders at a price determined in accordance with various norms.