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The Tax Publishers SEBI--Insider Trading SEBI's Proposed Expansion of 'Connected Persons': Strengthening Insider Trading Rules or Overreach? CS. Raksha Sankhlecha This article critically examines the SEBI's proposed expansion of the definition of 'connected persons' under insider trading regulations. By broadening regulatory oversight, SEBI aims at closing potential loopholes in contra-trading restrictions. However, the proposed changes raise concerns about increased compliance burdens and regulatory overreach. Through a structured analysis, this piece of write-up explores as to whether the expansion strengthens market integrity or risks the unintended consequences. 1. Introduction Contra-trades, or the reversal of initial securities transactions, have become a critical focus in corporate regulation. These transactions involve buying or selling company securities and executing an opposite transaction within six months to capitalize on short-term price movements. As legal scholar Mr. Umakanth Varottil explains, contra-trading regulations, particularly within India, stem from broader concerns about insider trading and its potential to disrupt market integrity. The Securities and Exchange Board of India (SEBI), through its Prohibition of Insider Trading (PIT) Regulations of 2015, casts a wide regulatory net to oversee insiders and designated persons. The scope of these regulations largely depends on the definition of 'connected persons,' a term currently under scrutiny and potential reform. In its July 2024 consultation paper, SEBI has proposed significant amendments to this definition, introducing new categories that could alter the regulatory landscape. This two-part analysis critically examines the SEBI's proposed expansion, beginning with a review of the current framework and its anticipated changes. The second part will assess the SEBI's proposals against legal and theoretical benchmarks in India and globally, ultimately questioning whether the proposed revisions represent a truly progressive step. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

SEBI--Insider Trading

SEBI's Proposed Expansion of 'Connected Persons': Strengthening Insider Trading Rules or Overreach?

CS. Raksha Sankhlecha

This article critically examines the SEBI's proposed expansion of the definition of 'connected persons' under insider trading regulations. By broadening regulatory oversight, SEBI aims at closing potential loopholes in contra-trading restrictions. However, the proposed changes raise concerns about increased compliance burdens and regulatory overreach. Through a structured analysis, this piece of write-up explores as to whether the expansion strengthens market integrity or risks the unintended consequences.

1. Introduction

Contra-trades, or the reversal of initial securities transactions, have become a critical focus in corporate regulation. These transactions involve buying or selling company securities and executing an opposite transaction within six months to capitalize on short-term price movements. As legal scholar Mr. Umakanth Varottil explains, contra-trading regulations, particularly within India, stem from broader concerns about insider trading and its potential to disrupt market integrity.

The Securities and Exchange Board of India (SEBI), through its Prohibition of Insider Trading (PIT) Regulations of 2015, casts a wide regulatory net to oversee insiders and designated persons. The scope of these regulations largely depends on the definition of 'connected persons,' a term currently under scrutiny and potential reform. In its July 2024 consultation paper, SEBI has proposed significant amendments to this definition, introducing new categories that could alter the regulatory landscape. This two-part analysis critically examines the SEBI's proposed expansion, beginning with a review of the current framework and its anticipated changes. The second part will assess the SEBI's proposals against legal and theoretical benchmarks in India and globally, ultimately questioning whether the proposed revisions represent a truly progressive step.