Context: SEBI accuses Adani kin of insider trading, he seeks to settle

Source: The Hindu

Pranav Adani, the nephew of the billionaire founder and a director of many Adani group companies, was accused by India’s markets regulator of sharing price-sensitive information and violating rules meant to stop insider trading.

In 2021, Mr. Pranav violated insider trading regulations by giving his brother-in-law Kunal Shah access to price-sensitive, undisclosed information about the SB Energy Acquisition.

The largest acquisition in India’s renewable energy sector to date was Adani Green’s purchase of SB Energy on May 17, 2021, for an enterprise value of $3.5 billion.

Model Question:

Discuss the role of SEBI in regulating insider trading in India. Analyze the challenges in enforcement and suggest reforms to strengthen the regulatory framework.

Model Answer:

The Securities and Exchange Board of India (SEBI) is the apex regulatory body for securities markets in India. Among its key mandates is the prevention of insider trading, which undermines investor confidence and market integrity.

Insider trading refers to the buying or selling of securities by individuals who possess unpublished price-sensitive information (UPSI) not available to the public. SEBI governs insider trading primarily through the SEBI (Prohibition of Insider Trading) Regulations, 2015, updated periodically.

Role of SEBI:

1. Regulatory Framework: SEBI defines insiders, UPSI, and trading windows, and mandates disclosure obligations for listed companies.
2. Monitoring & Investigation: SEBI monitors trades using data analytics and can launch investigations based on alerts or complaints.
3. Penal Action: SEBI can impose penalties, disgorgement of profits, and initiate prosecution under the SEBI Act, 1992.

Challenges in Enforcement:

1. Proving intent: Insider trading requires establishing that the accused had access to UPSI and traded based on it.
2. Technology & speed: High-frequency trading and encrypted communications hinder tracking.
3. Cross-border trades: Global capital flows make jurisdictional enforcement difficult.
4. Low conviction rate: Despite investigations, few cases end in convictions due to evidentiary challenges.

Way Forward:

1. Stronger surveillance using AI and blockchain audit trails.
2. Whistleblower protection to encourage internal reporting.
3. Time-bound investigation processes and specialized insider trading courts.
4. Greater coordination with global regulators through MoUs.

While SEBI has taken significant steps to curb insider trading, strengthening technological capacity and legal frameworks is crucial to ensure a level playing field and uphold market integrity.