Securities and Exchange Board of India chairman Tuhin Kanta Pandey stressed on the importance of listed banks putting in place mechanisms to prevent insider trading, saying that they had dual compliance requirements under the regulations as a listed entity and as a fiduciary.
Addressing the heads of banks based in the western region, Pandey said, “As Managing Directors, you carry the highest responsibility for ensuring your organisations lead, not only in financial performance but also in ethical governance.”
Compliance with insider trading regulations was not just a legal obligation but also a “moral responsibility,” he said.
IndusInd saga
He urged on them the importance of strengthening internal controls, ensuring confidentiality of unpublished price sensitive information (UPSI) and leverage technology for better compliance.
Pandey’s remarks have to be seen in the context of the order passed by the regulator against some of the top former leaders of IndusInd Bank for violating insider trading norms. SEBI’s investigations had revealed that the then MD and his deputy had traded in the shares of the bank while they were aware of certain price sensitive information related to the bank’s derivatives transactions.
He pointed out that as a fiduciary banks possessed UPSI of other companies, which would have direct impact on their stock prices if misused and leaked.
UPSI sensitiveness
UPSI should be handled on a need-to-know basis, so that an employee who has no need for it should not have access to it and such information should not be informally shared over emails, Pandey said.
“A single leak can travel across digital networks in seconds and there is no way to undo the damage — to stock prices, to investor confidence, or to your bank’s reputation. This is why strict access protocols, information walls, and secure digital systems are essential,” he said.
Establishing and maintaining a Structured Digital Database, one for the bank’s internal UPSI and another for other listed companies, was a critical tool in the compliance process.
“SDD creates a clear, auditable trail of every instance where sensitive information changes hands. When employees and executives know that every UPSI transaction is logged and traceable, the risk of deliberate leaks or insider trading reduces significantly,” he said.
Compliance officers had to be suitably empowered to enforce the insider trading norms, he added.