Ranabaxy Insider Trading - Where is SEBI?

Markets Rejoiced the mega merger announcement of Ranbaxy and Sun pharmaceuticals on 7th April 2014 but the real action was happening in the prior week and somebody made fortune by having an insider line in this deal. 

The stock shot up more than 25% in the prior week on very high volumes but very low delivery indicating speculative built up of position prior to the merger announcement. 

Delivery on the National Stock Exchange was around 12 per cent of traded volume on 2nd, 3rd and 4th April when the stock witnessed nine per cent, 5.1 per cent and 8.2 per cent respectively. The closing on 4th April was less than Rs 3 from the share price in the deal. 

Corporate Governance Rating for listed companies in India

SEBI is considering a "Corporate Governance Rating" for every listed company in India which, in my view, could be a game changing event for minority shareholders. Security Exchange board of India is in the process of finalizing its new Corporate Governance Code and revamp insider trading norms. Beside having new rules that are largely targeted to protect minority shareholders, Governance Rating for each company will be very handy specially when a small investor is investing in mid and small cap companies.

Like IPO grading, a grading system for companies on governance front is a much needed reform that will strengthen the overall capital market of the country. For minority shareholders, governance is much more important than valuations and the former being subjective it becomes very difficult to asses the score in that front. 

If "Corporate Governance Rating" become reality it will help all of us in flushing out almost all crap and scam ridden companies. All we need to do is check the score and completely avoid companies which are below certain level. 

In my whole investing career more than 90% of my loosing bets were due to governance issues in the companies. Strong insider trading rules and tough penal actions for the guilty along with Corporate Governance Rating will surly help build confidence in the Indian Stock Markets and encourage wider participation by small retail investors. 

New insider trading norms to benefit minority shareholders in India

By definition "Insider trading is when company insiders such as promoters, senior management and directors trade in the stock of their own company on the basis of information which is not available to the public shareholders". Under current insider trading norms promoters and other company insiders have to make a disclosure with the stock exchange within five days of the trades. 

Security Exchange Noard of India or Sebi’s committee feels the post-trade disclosure puts minority shareholders at disadvantage and hence under proposed new norms promoters and top executives, intending to buy or sell shares of their companies, will have to inform the market well in advance before such transactions. Once Sebi makes it a rule, promoters and insiders may have to specify a window, maybe up to three months in prior, during which they would buy or sell their own shares.