New Delhi, March 9, 2018

As the investors' confidence is on a rise in India, the companies must have a policy to manage unpublished price sensitive information (UPSI) to prevent insider trading, says a report.

"Companies must have a policy to manage UPSI and the risks emanating from its leakage. These policies should provide guidance in the form of procedures (to implement the policy) and should be audited on a periodic basis," said Suveer Khanna, Partner-Forensic Services at KPMG in India.

Industry chamber ASSOCHAM and KPMG in India on Friday launched a paper titled "The 'Insider' threat -- Safeguarding UPSI".

"Due to the dynamic business scenario, the information flow of confidential data has become very fluid and in such an environment, data is frequently in transit. Companies should look at implementing good practices such as investing in the right technology to avoid data leakage," said Sudesh Anand Shetty, Partner-Forensic Services, KPMG in India.

The report also suggested a few things that would help the companies keep its reputation intact by guarding against insider trading. It recommended investments in right technology, right processes and in people.

The equities market regulator -- Securities and Exchange Board of India -- has framed regulations such as SEBI Prohibition of Insider Trading Regulations (PIT), 2015, to combat the menace of trading in securities with the unfair advantage of having access to UPSI which when published could impact the price of securities in the market, it said.

The paper said Red flags identified, if any, from audits should be documented and steps must be taken to mitigate the risks.

A company has multiple applications installed with various data sources generating large and varied datasets. UPSI typically would consist of information which is confidential or is not public knowledge, which when disclosed to the public is likely to materially impact the performance of the company's stocks, it said.

This report comes only a couple of days after the SEBI had directed Tata Motors to conduct an inquiry into the leakage of unpublished price sensitive information relating to financials prior to their official announcement in the stock exchanges.

The SEBI order comes after it probed the leakage of Tata Motors financial numbers for the quarter ended December 31, 2015 on Whatsapp groups ahead of its filing with the stock exchanges.

The report said 'insider trading' is an undesirable practice that breaches the fundamental principle of 'information symmetry' and tends to distort the market by creating unfair advantage in favour of those who profit on the basis of UPSI.

The report said securing UPSI and ensuring that the data does not fall in wrong hands is critical for a company to ensure continued investor confidence, preserving its own reputation and goodwill in the market.

[The Business Standard]