MC EXCLUSIVE Sebi to sensitise regulators on insider trading and price-sensitive info post-CERC issue

MC Exclusive: Sebi to Sensitise Regulators on Insider Trading and Price-Sensitive Information

In the wake of recent revelations involving officials from the Central Electricity Regulatory Commission (CERC) in an insider trading case, the Securities and Exchange Board of India (Sebi) is planning to reach out to all sectoral regulators to sensitise them about insider trading norms and the handling of Unpublished Price Sensitive Information (UPSI), said two people aware of the development.

The first person said, “Soon, Sebi will consider approaching sectoral regulators about sensitising on Unpublished Price Sensitive Information (UPSI). Many times, it’s not intentional but inadvertently things leak, which may be price moving. The idea is to make them aware of possible misuse of such UPSI and take preventive steps.”

The alleged involvement of regulatory officials in leaking unpublished market-moving information is unprecedented. The CERC case marks the first instance where Sebi has named officials from a regulatory authority in an insider trading case — prompting the regulator to consider a broader sensitisation drive.

The initiative is likely to include sectoral regulators such as the Telecom Regulatory Authority of India (TRAI), Reserve Bank of India (RBI), Insurance Regulatory and Development Authority of India (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA), CERC, and others. An email seeking comments from Sebi did not elicit any response till the publishing of the story.

According to the second person, “It’s not only company-specific regulatory action but sometimes policy measures under consideration may also be price sensitive, like in the case of IEX.” The person further added that such leaks not only lead to misuse of information but can also damage the reputation of the institution involved.

Sources said Sebi believes that enforcement alone cannot address every challenge. Hence, a new approach of engaging with stakeholders through sensitisation sessions is being adopted. Last month, Sebi conducted a special session for banks where Chairman Tuhin Kanta Pandey addressed MDs and CEOs on the theme of “Strengthening Compliance with PIT Regulations in Listed Banks.”

Speaking at that event, Pandey said: “If leaked, even unintentionally, market-moving information could impact shareholder wealth and erode investor trust. This is why your role as Managing Directors is not limited to overseeing your bank’s own compliance. It extends to ensuring that information about other companies, which you hold as fiduciaries, is protected with the same rigour and confidentiality as your own organisation’s sensitive data.”

Though Sebi had already planned such sessions for all stakeholders, the trigger appears to be the CERC officials’ alleged role in insider trading involving shares of Indian Energy Exchange (IEX). On Wednesday, Sebi passed an interim order barring eight persons for alleged insider trading based on UPSI related to “market coupling” — a mechanism expected to adversely affect IEX’s business. CERC regulates spot electricity trading, and IEX is one of the entities under its purview.

According to Sebi’s findings, the eight individuals made illegal gains of around Rs173 crore in just 1.5 months. The interim order noted that a key individual who allegedly misused UPSI, along with his family members, was personally connected to the family of the head of CERC’s Economic Policy Division. The insider trader allegedly accessed CERC’s market coupling policy details through this connection.

Market coupling is a mechanism where buy and sell bids from all power exchanges are aggregated and matched to discover a uniform market-clearing price. The model ensures that power exchanges serve purely as bidding platforms, with the final dispatch determined centrally.

Sebi Whole-Time Member Kamlesh Chandra Varshney, who passed the interim order in the IEX matter, has also directed that a copy of the order be sent to CERC for necessary action.

Experts point out that Sebi’s Prohibition of Insider Trading (PIT) Regulations apply to all entities handling UPSI. Makarand Joshi, founder-partner at MMJC and Associates, said, “PIT is applicable to all entities who handle UPSI — this has been clear since the framing of PIT regulations. With this precedent, all entities dealing with listed companies will have to ensure strict compliance with the PIT framework.”

In the past too, Sebi has taken strict action against its own officials involved in misconduct. One of the most notable cases was the Pyramid Saimira episode, where the regulator dismissed one of its officers for colluding with company promoters.