Understanding Immediate Relatives under SEBI Regulations
The Securities and Exchange Board of India (SEBI) plays a crucial role in regulating the Indian securities market and ensuring fair trading practices. One of the key regulations implemented by SEBI is the Prohibition of Insider Trading Regulations, 2015, which aims to prevent individuals with access to unpublished price-sensitive information from using it for personal gain or to the detriment of other investors.
A crucial aspect of these regulations is the definition of “immediate relative,” as these individuals are subject to specific disclosure requirements and trading restrictions. This article delves into the definition of immediate relatives under the SEBI regulations and provides clarity on related aspects
Definition of Immediate Relative
Section 2(1)(f) of the SEBI (Prohibition of Insider Trading) Regulations, 2015 defines “immediate relative” as:
- Spouse of a person
- Parent, sibling, and child of such person or of the spouse
- Any of whom is either financially dependent on such person or consults such person in taking decisions relating to trading in securities.
Key Points to Remember
- The definition encompasses a broad range of individuals, including spouses, parents, siblings, and children.
- Financial dependency or consultation with the person regarding securities trading decisions is a crucial factor in determining immediate relative status.
- Even if an individual falls within the definition of an immediate relative, they may not be considered an insider if they do not have access to unpublished price-sensitive information.
Form A Disclosure Requirements
The SEBI regulations mandate that every promoter, key managerial personnel, and director of a listed company, along with their immediate relatives, disclose their holdings of the company’s securities in Form A. This disclosure must be made within 30 days of the regulations taking effect.
Submission of Form A
Form A is required to be submitted to the company and not to the stock exchange. The company is then responsible for submitting the relevant information to the stock exchange.
Understanding the definition of “immediate relative” under the SEBI (Prohibition of Insider Trading) Regulations, 2015 is essential for ensuring compliance with the regulations and preventing insider trading. By adhering to the disclosure requirements and trading restrictions, individuals can contribute to maintaining a fair and transparent securities market.
As part of their trusting relationship, spouses and other family members may have access to extremely private information about publicly traded companies. In those cases, family members should preserve and protect that information rather than trading on it, according to a statement released by the SEC on March 31, 2014. Similar SEC orders were issued in 2011 and 2013.
A recent order addressed this matter, stating that the spouse of a listed company’s director traded the company’s shares without obtaining the required pre-clearance. It was not the first such case though. This topic has frequently come up in conversations between industry representatives and Sebi. The official spoke on condition of anonymity because he is not permitted to speak to the media. “With the clarification clearly stated, the onus will be on the accused to rebut the assumption even if the spouse is financially independent,” the official said.
In compliance with the directive, the director informed Sebi that his wife, who he claimed was financially independent, had sold the shares, negating the need for pre-approval. Additionally, he included the legal opinion of Amarchand Mangaldas and Co. declaring that any breach was purely technical and doesn’t require punishment
The problem of spouses or other close relatives exchanging insider information has been encountered by capital market regulators other than Sebi. Similar cases exist in the US, where company officials have been charged by the Securities Exchange Commission (SEC) with insider trading when their spouses made stock transactions based on information that was sensitive to the price of the company’s stock.
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Who are immediate relatives as per SEBI?
Immediate Relative for the purpose of Insider Trading Regulations means a Spouse of a person and includes parents, sibling and child of such person or of the spouse any of whom is either dependent financially on such person, or consults such person in taking decisions relating to trading in securities.
Can a spouse be a relative under SEBI?
In a guidance note issued on Monday, the Securities and Exchange Board of India (Sebi) clarified that under the Sebi (Prohibition of Insider Trading) Regulations, 2015, a spouse is presumed to be an “immediate relative” unless the company official is able to prove otherwise. Who is designated person as per SEBI?
Who is considered a designated person in SEBI?
9.1 SEBI Regulations specifies that all Promoters of Listed Companies and Promoters who are Individuals or Investment Companies for Intermediaries or Fiduciaries shall be included as Designated Person. Who is considered as connected person?
What is the difference between 48 & 49 of SEBI regulations?
48 Inserted by SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2011, w.e.f. 23.09.2011. 49 Substituted by SEBI (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2012, w.e.f. 12.10.2012.