Capital market regulator Securities Exchange Board of India (Sebi) on Wednesday proposed to widen the definition of "insider trading", with plans to include company employees, directors, their immediate relatives and public servants handling market sensitive information, as part of efforts to put up a robust defence against potential securities frauds.
"Insider trading" broadly refers to the act of trading in companies' shares by people who are privy to classified information. Under current rules only senior executives are liable for trading violations.
The new norms, once implemented, would also apply to mutual funds and trusts issuing securities, or schemes that get listed on stock exchanges.
The proposals by a panel chaired by former Chief Justice of Kerala and Karnataka NK Sodhi, make it mandatory for every listed company and market intermediary to formulate a code of conduct to regulate, monitor and report trading in securities by its employees or "connected persons".
The proposals are aimed to overhaul India's two-decade old insider trading rules to make them more contemporary, with checks to prevent frauds by accessing classified information on corporate strategy.
Under the proposals, trades by stakeholders, employees, directors and their immediate relatives would also need to be disclosed internally to the company.
"Simply put, the proposed regulations entail a prohibition on trading by insiders in securities when in possession of UPSI (unpublished price-sensitive information), thus obtaining an unfair advantage," the panel, which was set up in March this year, said in its 74-page report submitted to Sebi.
The panel has sought public comments on the new norms by December 31, 2013.
"The committee has also suggested that each regulatory provision may be backed by a note on legislative intent," Sebi said in a statement.
If a person is charged with insider trading, the onus of proving innocence will lie on the person.