Sebi chief Madhabi Puri Buch on love, affection and insider information

According to Sebi chairperson Madhabi Puri Buch, the intent is to align the regulatory framework with that of the Income Tax Act and Companies Act.

If relatives give gifts to each other out of love and affection, is it possible that they also give or share insider information – a serious market offence – basis the same love and affection?

Yes, according to the capital market watchdog Securities and Exchange Board of India (Sebi), which released a consultation paper earlier this week to propose changes to the manner in which ‘connected persons’ are defined in terms of the insider trading regulations.

According to Sebi Chairperson Madhabi Puri Buch, the intent is to align the regulatory framework with that of the Income Tax Act and Companies Act.

Interestingly, the first female head of Sebi is of the view that since the Income Tax Act recognises the fact that relatives give gifts out of love and affection and hence does not levy tax on it, there is a probability that relatives could share insider information as well out of love and affection and hence the rules need a review to keep the spirit of the law intact.

“The rationalisation is being done in two ways. One is the definition of relative, which we propose to import from the income tax regulations,” said Buch.

“Under income tax regulations, it is stated that if someone is giving a gift to another person, it is because of love and affection and hence no tax should be levied. That is the thought. We have said that if you are giving insider information because of love and affection then the same principle should be applied. That if you can give tax free gift because of love and affection, then you can give insider information also because of love and affection. That is how we have proposed the definition,” she explained while speaking at an event at the National Stock Exchange.

In a discussion paper released on July 29, Sebi proposed expanding the definition of connected persons under Sebi (Prohibition of Insider Trading) Regulations or (PIT) Regulations to include more relatives.

Also Read: Sebi proposes expanding list of 'connected persons' for insider-trading regulations

Connected persons are those who are likely to have access, directly or indirectly, to unpublished price-sensitive information (UPSI) because of the nature of their employment or their profession, and those associated with them including their immediate relatives such as parents, siblings and child. The regulator has suggested including new categories of relatives to this list of connected persons.

Among other things, the regulator has proposed an amendment replacing “immediate relative” with “relative” under regulation 2(1)(d), which is the section that defines connected persons.

The category of “relative” of connected persons, as per the discussion paper, will include siblings of spouse, siblings of parents, any lineal ascendant or descendant and all of their spouses.