SEBI Proposes Broader Definition Of 'Connected Persons' In Insider Trading Regulations To Include More Relatives

Under the current PIT Regulations, a connected person is defined as someone likely to have access to Unpublished Price Sensitive Information (UPSI) due to their employment or professional relationship with a company. This includes immediate relatives, such as parents, siblings, and children. The proposed amendments suggest expanding this definition to encompass a broader range of relatives and other individuals who might have access to UPSI.

The term "immediate relative" is proposed to be replaced by "relative" in regulation 2(1)(d). This change aligns with definitions found in the Income Tax Act, 1961. The new definition will include:

• Siblings of the spouse
• Siblings of parents
• Any lineal ascendant or descendant and their spouses

The regulator proposes to include six new categories under the definition of connected persons:

• Firms, their partners, or employees where a connected person is also a partner
• Individuals acting on the advice, directions, or instructions of a connected person
• Corporate bodies whose directors or managers act on the advice of a connected person
• Persons sharing a household with a connected person
• Persons having a material financial relationship with a connected person
• Hindu Undivided Families (HUF) where the Karta or any member is a connected person or their relative

To avoid increasing compliance burdens, SEBI has decided to retain the definition of "immediate relative" for specific disclosure and code of conduct requirements under the PIT Regulations. This means that existing disclosure requirements for promoters, directors, and designated persons regarding their immediate relatives will remain unchanged. However, the term "relative" will now be used to determine insider trading cases.

The amendment to regulation 2(1)(d) will now include persons who have been associated with a company in any capacity during the past six months. This association can be through employment, frequent communication, or any professional or business relationship.

New categories of deemed connected persons will be introduced. These include relatives of connected persons, partners or employees in firms where a connected person is also a partner, and individuals or entities that influence connected persons through advice or financial relationships.

The new regulation 2(1)(hc) defines "relative" in line with the Income Tax Act, 1961. This includes spouses, siblings, siblings of spouses, siblings of parents, and any lineal ascendant or descendant along with their spouses.

The note in the definition of "immediate relative" in regulation 2(1)(f) will be removed. This note currently presumes immediate relatives of connected persons to also be connected persons for regulatory purposes, but this presumption is rebuttable.

 Click Here To Read/Download Consultation Paper On Proposed Amendments