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SEBI’s Insider Trading And Unfair Trade Regulations May Soon Have A Baby

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SEBI has recently released consultation papers outlining new regulations aimed at establishing a fresh framework to address unexplained suspicious trading activities.

Ms. Payaswini Upadhyay from BQ Prime has written an article discussing the potential impact of these proposed regulations. If implemented as planned, they would deem repetitive abnormal trades, conducted based on undisclosed material information, as illegal. Notably, this represents a significant departure from current rules governing insider trading and unfair trade practices, as the burden of proof would rest on the accused parties.

The article also features views of Mr. Sumit Agrawal, Managing Partner, Regstreet Law Advisors and former SEBI officer, observed that, โ€œthis proposal is trying to address two of the Supreme Court’s decisions. One, the PC Jeweller Ltd case, where the apex court had held that only circumstantial evidence such as trading pattern, without establishing possession and communication of unpublished price-sensitive information, cannot be enough to bring insider trading charges. And two, the Abhijit Rajan case, where it was held that profit motive of the insider is an essential precondition for a successful insider trading charge. These judicial pronouncements, coupled with the government’s reluctance to grant SEBI the powers to decrypt electronic communications, have resulted in the markets regulator proposing this new framework. But the issue is that SEBI is saying that the presumption of guilt approach it is proposing is similar to what income tax law provides vis-ร -vis unexplained cash credits. However, the provision under income tax, and similar ones under other laws, are provided in the parent legislation. No such provision exists in the SEBI Act itself. Now, imagine if SEBI could, merely on the basis of suspicion, use its powers to pass ex-parte, interim orders, it’ll really be draconian. So, the constitutionality of such a provision is questionable, which means SEBI will have to provide safeguards if it implements this proposal.โ€

Readers are also welcome to send their views to Regstreet Law Advisors at info@regsteetlaw.com.

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