Insider Trading: SEBI order banning Kishore Biyani from securities market, explained

File image: Future Group Chairman Kishore Biyani

The Securities and Exchange Board of India (SEBI) has barred Future Group founder Kishore Biyani and his brother Anil — along with a few other individuals — from the securities market for one year. India’s capital markets regulator also banned them from trading in the shares of Future Retail for two years after an investigation found insider trading in shares of Future Retail in 2017. What were the wrongdoings that the SEBI probe revealed and how did it establish the alleged charges? Below is an attempt to answer the vital questions on the SEBI order issued on February 3.

What triggered the SEBI probe?

The capital market regulator looked into the trading pattern of Future Retail shares between March 10, 2017 and April 20, 2017 to check whether any entity traded in the shares based on unpublished price sensitive information (UPSI)

What did the SEBI probe find out?

On April 20, 2017, Future Retail announced the demerger of certain businesses, which caused the company’s share price to rise. The SEBI probe, however, found that preliminary discussions for the demerger were held on March 10, 2017 when a team of officials was created to work on the demerger. Hence, according to SEBI, the demerger news became UPSI on March 10. More importantly, two entities—Future Corporate Resources Private Limited and FCRL Employee Welfare Trust—traded in the shares of Future Retail during the UPSI period.

What was wrong with the transactions?

Future Corporate Resources is part of the promoter group of Future Retail and is owned by entities in which members of the Biyani family, including Kishore and Anil, are majority shareholders. Kishore Biyani while being a director of Future Corporate Resources, was also the CMD of Future Retail and hence an “insider” as per SEBI (Prohibition of Insider Trading) Regulations. His brother, Anil Biyani, as a close relative and a director of Future Corporate Resources, also fell under the definition of insider as per SEBI norms. Hence, any trade done by Kishore and Anil during the UPSI period would be deemed insider trading and a violation of SEBI rules.

How did SEBI establish the charges?

The SEBI investigations found that Kishore and Anil opened a trading account for Future Corporate Resources with stock broker Indiabulls Ventures on March 27, 2017 when the news about the demerger was still not in the public domain. This qualified as UPSI, per SEBI. The board of Future Corporate Resources, on March 14, authorised the two brothers to trade in the stock market on behalf of the company. Further, the transfer of funds from Future Corporate Resources to Indiabulls Ventures for the purchase of shares of Future Retail was authorised by Kishore and Anil.

Thereafter, trading in the shares of Future Retail was done on March 29 and March 30, 2017 — soon after the trading account was opened and before the demerger news was made public. According to SEBI, Future Corporate Resources bought a total of 36.3 lakh shares during the UPSI period. Meanwhile, another entity, FCRL Employee Welfare Trust, bought a combined 8.01 lakh shares during the UPSI period. According to the SEBI probe, this too fell under the definition of “insider” due to its direct and indirect connection with Future Corporate Resources and Kishore Biyani.

How did SEBI act against the alleged offenders?

While Future Corporate Resources and the Biyanis have denied any wrongdoing and said that the information regarding the demerger was “generally available” and hence not qualified as UPSI, the capital market regulator, in a 77-page order issued on Wednesday, barred the three entities from trading in securities for one year. They have also been barred from trading in shares of Future Retail for two years. Among other directions, they have also been ordered to disgorge a total of around Rs 20 crore along with interest at 12 percent a year from April 20, 2020 till the date of payment. This, as per SEBI, was the unlawful gains that the entities made after trading based on information that was not available to the public at large.

How has Future Group responded to the order?

Future Corporate Resources has said that it has the right to appeal and will challenge the order at the appropriate forum. It has further said that the capital market regulator considered such information as UPSI, which was “well-anticipated and publicly well-known impending reorganisation of the home furnishing businesses” of the business group. The SEBI order also noted that Future Corporate Resources along with Kishore and Anil, in their submissions, denied any wrongdoing and said that the information regarding the demerger was “generally available” and was “widely reported across numerous media platforms, much before the dates on which the trades were undertaken.”

The statement by the business house also highlighted the fact that the SEBI order will not pose any hindrance to its ongoing Scheme of Arrangement with the Reliance Group. SEBI “has taken care to exclude dealings in securities under any impending Scheme of Arrangement,” said the statement.