Stop before it happens: companies ping law firms to prevent insider trading
Mumbai: Listed companies are increasingly seeking legal guidance not to defend insider trading investigations, but to prevent them from happening in the first place. Securities
Mumbai: Listed companies are increasingly seeking legal guidance not to defend insider trading investigations, but to prevent them from happening in the first place. Securities lawyers said the nature of client queries has shifted dramatically over the past few years, after the regulator tightened India's insider trading framework by leveraging technology. Clients now want to know what qualifies as unpublished price sensitive information (UPSI), when confidential information should be recorded first, who inside the company should have access to it, how it should be shared with auditors, consultants and law firms, and what steps a board should take if it detects suspicious trading by an employee. Lawyers said many companies are also seeking advice on conducting internal investigations before the regulator steps in, and strengthening compliance systems to prevent lapses and avoid regulatory scrutiny. UPSI includes upcoming financial results, mergers, or major business decisions that could move a company's stock price. The Securities and Exchange Board of India (Sebi) has designed strict rules on UPSI to prevent insider trading and shield ordinary investors from market manipulation. In 2018, the regulator ordered listed companies to build in-house structured digital databases (SDD) to track every instance of UPSI being shared.
This digital log records who accessed the information, when, and with whom it was shared, creating an audit trail. Also Read | Buy-side margin relief on cards as Sebi looks to lift cash market turnover According to Sudhir Bassi, executive director at Khaitan & Co., companies frequently seek advice on when the information becomes UPSI, timing of the first entry in the SDD, subsequent updates to the database, legitimate ways of sharing confidential information, and the action that should be taken if an employee is suspected of insider trading. Queries sent to Sebi remained unanswered. "Our recommendation is to move from checkbox compliance to proactive, documented governance by adopting a broad approach to identifying UPSI, automating SDD entries and maintaining robust internal controls. A well-documented compliance trail is as important as preventing the leak itself," said Gaurav Mistry, partner at DSK Legal. Also Read | Sebi's plan to allow celeb for MFs is making the industry edgy The shift reflects the regulatory approach to insider trading, while keeping an eye on unusual price movement and trading activity. Investigations are now increasingly built around digital evidence, corporate records and internal governance rather than relying on circumstantial evidence.
The BriefWire