SEBI Proposes Expanded Definition of Connected Persons to Include More Relatives in Insider Trading Regulations

The market regulator, Securities and Exchange Board of India (SEBI), has proposed expanding the definition of “connected persons” under the SEBI Prohibition of Insider Trading Regulations (PIT Regulations) to include additional relatives.

Currently, “connected persons” are defined as individuals who are likely to have access to unpublished price-sensitive information (UPSI) due to their employment or profession, and their immediate relatives, such as parents, siblings, and children. SEBI’s new proposal seeks to broaden this definition by adding more categories of relatives.

In a consultation paper dated July 29, SEBI proposed amending regulation 2(1)(d) to replace the term “immediate relative” with “relative.” The new definition would include:

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

The definition of “immediate relative” under regulation 2(1)(f) would be retained for disclosures and code of conduct purposes under the PIT Regulations.

Additionally, SEBI has suggested including six new categories of connected persons:

1. A firm, its partner, or its employee in which a connected person specified in clause (i) is also a partner. Clause (i) broadly includes individuals employed by the company or having a contractual or fiduciary relationship with the company in the past six months.
2. Any person whose advice, directions, or instructions a connected person specified in clause (i) is accustomed to follow.
3. A body corporate whose board of directors, managing director, or manager follows the advice, directions, or instructions of a connected person specified in clause (i).
4. Individuals sharing a household or residence with a connected person specified in clause (i).
5. Individuals with a significant financial relationship with a connected person specified in clause (i), including those with employment ties, financial dependency, or frequent financial transactions.
6. A Hindu Undivided Family (HUF) where the Karta or any member/coparcener is a connected person specified in clause (i) or a relative of connected persons specified in clause (i).