The two things that stand out about SEBI's insider-trading case against former Alliance Capital Chief Investment Officer Samir Arora are its timing, and the regulator's hitherto unseen tough-guy approach. The surfacing of the allegations against Arora soon after he quit Alliance (he announced he was launching a fund with former Stanchart CEO Rana Talwar's Sabre Capital) have leant credence to theories that the whole thing is a frame up. And SEBI chairman G.N. Bajpai seems to have woken up to the fact that the entire episode is a great opportunity for him to send out a don't-mess-with-me message, something evident in the media-chummy top regulator's efforts to go after journalists believed to be involved in l'affaire Arora. This piece isn't about the former star fund manager's fate (you'll have to turn the page for that); it is all you'll every need to know about insider trading in the Indian context. There's not much, but what little is there is rendered incoherent by the static of miscomprehension and misinterpretation.

What is insider trading?

In India, the term is often used in place of 'illegal insider trading'. Actually, not all trading in a company's stock by insiders-directors, executives, employees-is illegal. Only the transactions they conduct while in possession of material non-public information about the company or the scrip are considered illegal. However, trading by outsiders who are privy to such information-that includes bankers who may know of a company's expansion plans before they are announced, or a friend with whom the company's CFO has been less than discreet-does fall under the defini-tion of illegal insider trading.

What's the argument against insider trading?

A retail investor has access only to published information about a company. Ergo, insider trading can undermine his or her confidence in the fairness and integrity of the stockmarket.

How does the Securities and Exchange Board of India deal with insider trading?

It restricts trading by insiders and asks companies to decide when it can allow insiders to trade in the scrip. It directs that no trading be allowed when the company is announcing its financial results or declaring dividends, considering an expansion, acquisition, or stock buy back, and several other instances. Insiders, the regulator says, can trade only 24 hours after such information is made public by writing to the stock exchanges, publishing it in the newspapers, or putting it up on the company website.

SEBI also mandates that executives have to report any trades of over Rs 500,000, 25,000 shares, or 1 per cent of the company's stock (whichever is the lower of the three) to the company within four days of the transaction. The company, in turn, is required to report this to the exchange it is listed on within five days.

Finally, the regulator has sought to restrict the flow of price-sensitive information by barring companies from sharing the same with stock market professionals.

Are SEBI's laws adequate to deal with illegal insider trading?

On paper, India's laws on insider trading are more stringent than international ones. From merely barring insiders from trading on the basis of unpublished price-sensitive information, the laws have moved on to prohibiting anyone in the possession of such information from trading. And proof that the information was not shared is no longer acceptable defence against charges of insider trading; today, an accused needs to prove that such information could have never been shared. ''This shifts the focus on to the accused to prove that there has been no insider trading,'' explains Somashekar Sundaresan, a specialist in securities law at law firm Jyoti Sagar Associates.

How applicable and practical are SEBI's insider trading laws?

Not very. Under existing laws, every corporate and M&A transaction can be seen as the source of inside information. The absence of a plea-bargain-an accused can settle the dispute without admission of guilt-could lead to never-ending litigation. And while America's Securities Exchange Commission makes it worth their while for stool pigeons to inform on their errant colleagues-they are eligible for 10 per cent of the value of the insider trading transaction-SEBI doesn't think that quite necessary.

What's SEBI's track record at dealing with incidents of insider trading?

India's first, and most high-profile case of alleged insider trading involved Hindustan Lever Limited (HLL) and five of its directors just ahead of the company's merger with Brooke Bond Lipton India. SEBI asked HLL to pay Rs 3.04 crore as penalty, but the Appellate Authority in the Finance Ministry set aside its order.

-Narendra Nathan

An under-siege Arora: This pic >100 words

INSIDER TRADING
Is Samir Arora Guilty?

Charge: Arora played a pivotal role in thwarting Alliance Capital's plans to sell its stake in Alliance Capital Mutual Fund.

This was motivated by his desire to, along with Henderson Global Investors, effect a Management Buy Out of the fund. This contributed to a fall of approximately Rs 300 crore in the assets under management of ACMF

Arora's defence: The Henderson angle is unsubstantiated. And of the Rs 1300 crore worth of redemptions that ACMF faced between November 2002 and January 2003, over Rs 1000 crore went out from its five debt funds. So, it wasn't as if the announcement by Arora and two other analysts that they wouldn't work for any of the other bidders turned off investors.

Charge: Arora traded in the shares of Digital Globalsoft on the basis of unpublished price sensitive information obtained due to his close nexus with company insiders.

Arora's defence: Alliance's equity funds gained Rs 24 crore from their transactions on the Digital GlobalSoft's counter. However, it will be hard to make charges of insider trading stick.

Charge: Arora did not inform the companies when Alliance's shareholding crossed the 5 per cent limit in Balaji Telefilms, Mastek, Digital GlobalSoft, Hinduja tmt and United Phosphorous.

Arora's defence: It's the fault of Alliance Capital's compliance department, not Arora's.

-Roshni Jayakar

Vajpayee's Vision: Or should we say Mitty's?

Stage Charity
Give the man a forum and watch the policy-statements roll.

It seemed only apt that congress president Sonia Gandhi refer to Prime Minister Vajpayee's grandiose vision as the local variant of Walter Mitty's dreams-a vernacular idiom drawn from a popular Hindi serial of the 1990s (Mungeri Lal was the name of the man, if you must know) inspired by Thurber's masterpiece. After all, Sonia's speech in parliament came just a few weeks after the Supreme Court had cleared the way for Sahara Television to air a serial named Karishma, allegedly based on a book by Barbara Taylor Bradford.

Much of Mitty's, sorry, Vajpayee's vision was articulated during a speech he delivered on India's 57th Independence Day. These (See The Road Ahead) ranged from still-on-paper projects such as the one to do with ports to unrealistic ones such as providing electricity to 100,000 villages, to self-importance-driven dreams such as sending a mission to the moon. Part of the vision is built around the quintessential Indian notion that more is better. In the case of the IITs this may not necessarily be true: the only reason IIT engineers are thought highly of the world over is because the demand-supply imbalance ensures that only the very best get in.

Still, not much need be made of Vajpayee's musings. During his independence day speech in 2000 he promised to connect all villages with a population higher than 1000 through all-weather roads. And in 2001, he declared that public sector banks would, over the following three years, lend 5 per cent of net bank credit to women entrepreneurs. Neither has happened. As Saumitra Chaudhury, the chief economist of credit rating agency ICRA puts it, ''Grandiose plans, even if unimplementable, have no opposition.'' Then, Mr Vajpayee, we won't dwell on your speech.

-Ashish Gupta

365 Ds
A Year Of Jaswant Singh

Most significant achievement: Managing to get the controversial Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Bill, 2002 through parliament

Most significant volte-face: Rolling back the hike he had proposed in fertiliser prices, citing political constraints

Continuing I-inherited-it problem: The fiscal deficit which continues to remain insustainably high

Biggest Failure: Inability to enforce the value-added tax regime despite announcing that it would come into effect from June 1, 2003

Happiest indicators in his year in office: Single digit inflation; burgeoning forex reserves; business confidence at six-year high.

We've-turned-things-around-moment: Prepaying of around $3 billion of India's total debt of $100 billion

Verdict: Could have been better. Still, could have been worse

THE BT 50 INDEX
Have the Mumbai blasts nipped an emerging bull run in the bud. We think not.

No one, not even hard-bitten cynics like us, likes to see something cut short just when it seems to be hitting its stride. Still, we think investors would do well not to attach too much importance to how the stockmarket reacted following the bomb blasts in Mumbai on August 25. The fact that the BT 50 is still around 148 (and the BSE Sensex over 4000) is enough reason for cheer. We have always maintained that being a free float index, BT 50 is more responsive to the environment, and a much more reliable (read: less volatile) measure of stockmarket sentiment. In the two weeks since this magazine last came up, the BT 50 has moved up by close to 3 per cent indicating that a revival is truely on. For the benefit those who missed the last edition of the index,a quick recap. Last fortnight, just around three months after it was launched, we decided to change the composition and the weightages of the BT 50. Reason: We are of the belief that indices should reflect market reality and that as listings, delistings, and mergers become commonplace, they should change frequently enough to remain an accurate weathervane. Which is why we have included Bharti Televentures in BT 50. It takes the place of Britannia Industries, the company with the lowest free-float market capitalisation on June 30, 2003. There's another reason why BT 50 has to change every quarter. Companies reveal their latest free-float position of a company's scrip every quarter. For instance, the free float in BSEs has decreased from 55.89 per cent to 41.76 per cent in the last quarter. BT 50 being a free-float index, a quarterly revision in weights becomes necessary. These changes have been carried out and are effective from August 1.

-Narendra Nathan