As the booming stock markets in the country are attracting more and more investors, from financial institutions to retail and foreign to domestic, the market regulator Securities and Exchange Board of India (Sebi) is becoming proactive to create favourable conditions for investment. Sebi's recent decision to tighten Insider Trading Regulation is yet another such move.

Sebi, in a draft guideline, has proposed that whenever an "insider" (key persons associated with a company having access to price-sensitive information) in a company buys and sells shares of that company or its subsidiaries within 6 months, he or she will have to surrender the entire profit made from such transactions to the company. This is practised in the USA where all shareholders holding 10 per cent or more surrender gains from such transactions. The regulator has clarified that this liability will be imposed without implying for guilt or wrongdoing.

Sebi's move is welcome because though we have regulations in the country to prevent insider trading -- where people privy to price sensitive information gain by dealing in shares -- in reality a very few have been caught and punished for such deeds. Insider trading is so rampant that most of unusual price movements are due to purchase or sale by insiders.

Naturally, other investors who do not have access to price sensitive information in advance, are the losers. Sebi's move, however, will not stop insider trading because insiders will still be able to gain from shares bought prior to six months. Sometimes key promoters, along with people acting in concert, themselves indulge in sale and purchase of their company's shares by rigging up the share price in the market. 

But still it is a good beginning. Sebi is right in suggesting strong action against unscrupulous insiders profiting from their positions. Those who abuse the system must be punished. Insiders must get the signal that the regulator is keen to bring in transparency in stock trading.

Restoring investors' confidence in the system is very important for India's economic development when a vibrant and transparent capital market is needed by the entrepreneurs to raise capital for investment. With the rising share prices and booming indices, retail investors are now coming back to the market and any action to curb manipulation and enhance transparency is welcome. Creating a better investment environment is important to make capital market wider and deeper with a larger investor base.