Sebi extends Insider Trading to Outsiders

Sebi twigs insider trading norms and almost makes them outsider trading norms…
Securities & Exchange Board of India (Sebi) recently amended the Insider trading regulations.
Amendment No 1: It amended the definition of insider trading almost to an extent where it can be termed as Outsider trading.
Amendment No 2: The second one creates a bar for insiders from trading in their companies for six months after execution of 1’st leg of trade. (After either buying or selling the insider can’t exit or enter the stock of his company in the next six months)
These both are extreme measures, nearly unrivalled in their scope anywhere in the world by any regulator. Especially the first one.
Insider trading as per the law existed last month penalized the misuse of non-public price-sensitive information by parties of interest in the company ( employees, promoters or directors) of the company, who have access to such information, and, in breach of their trust owed to the company, use it for private gain at the cost of other shareholders.
Economists call this simple thing as ‘exploitation of information asymmetry’. In simple trading language ‘Tippee giving a Tip’. Whatever be the name the recent Sebi’s amendment makes anyone liable who has received or has had access to such unpublished price-sensitive information even without having any connection with company. (Even the Thrash cleaner who might not even be on pay-role of the company) Previously, this class of persons was only limited to those connected with the company.
So, now anyone who chances across price-sensitive information can be liable for insider trading. Thus a person who recycles paper from the trash of a listed company, or a journalist who actively attempts to uncover fraud, also becomes an insider as opposed to only officer/directors/fiduciaries and their tippees as previously existed.
US. Dirks, an analyst and an (temporary) investigative journalist who actively uncovered a massive fraud in a company and communicated this fact to his clients, was alleged by the SEC for insider trading. The US Supreme Court had to finally rescue Dirks in a landmark case of Dirks vs SEC.

PS: This Blog is takes References From an Article published in ET by Prof Sandeep Parekh (IIM-A, Visiting faculty)