Not So Watertight: the Scope of “Insider”—Under the Insider Trading Laws in India

Abstract

The article analyses the definition of “Insider” under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“Regulation”). An attempt has been made to scrutinize the elements determining Insider under the Regulation. The current regime, describing the scope of Insider, is not watertight thus leaving a room for ambiguity and also excludes certain essential determinants which would otherwise be considered as Insiders. The article evaluates the definition of “Connected Person” to determine that the “Outsiders”, who may have access to such inside information of a corporation and trade on that basis, have been excluded from the ambit of Insider. The article shows how other countries have realized the mandate of including “Outsider” for the purpose of prohibiting Insider Trading. In furtherance, the article also breaks down the definition of Unpublished Price Sensitive Information (“UPSI”) which is contended to have been narrowly defined. The definition pays no heed to the “Outside Generated Information”, which may have an impact on the price of securities of the corporation. Moreover, the novel concept of Generally Available Information (“GAI”) has been relied more upon for the purpose of defining of UPSI. The concept of “Non Discriminatory Basis” has been used to define GAI. The drafters purposefully avoided laying down what constitutes “Non- Discriminatory Basis” with the object of preventing the narrowed down interpretation of GAI. The article contends that such avoidance would lead to a dubious situation and constrained interpretation of GAI. The article makes a comparative study of the Insider Trading laws in the other countries with that of India’s, examining and suggesting the approach adopted, which is more stringent, leaving a negligible scope of interpretation.