INTRODUCTION:
Investors are attracted by good corporate governance, and this increases their reliance on the Listed Entities. The decisions of the board can affect the stock market reaction towards investors. Hence, the meetings and decisions of the board amount to confidential information. Confidential information is only shared when it is required for the benefit of the company. Hence, it is important to maintain the confidentiality of the information, until it is disclosed in public.
It has been observed over the years that to gain an unfair advantage over others, the people working in the organisation manage to get their hands on confidential information and often engage in unfair trade. This is an unfair practice and morally wrong and hence in order to curb these unfair practices the SEBI has brought and amended from time to time, the SEBI (Prohibition of Insider Trading) Regulation, 2015 (hereinafter referred to as PTI Regulations).
A. RELEVANT PROVISIONS RELATED TO PRESERVATION, PREVENTION & DISCLOSURE OF UPSI AND TRADING ON THE BASIS OF UPSI:
Reg. 3 of PIT. COMMUNICATION OR PROCUREMENT OF UPSI:
This regulation prohibit communication and providing access to any UPSI except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. It also put prohibition on procuring such UPSI except for legitimate purposes.
Reg. 3(5) of PIT. MANNER OF HANDLING UPSI AND MAINTAINANCE OF SDD:
This reg require Board and head of LE to maintain SDD to handle UPSI.
(5). The board of directors or head(s) of the organisation of every person required to handle UPSI shall ensure that a SDD is maintained containing the nature of UPSI and the names of such persons who have shared the information and also the names of such persons with whom information is shared under this regulation along with the PAN or any other identifier authorized by law where PAN is not available. Such database shall not be outsourced and shall be maintained internally with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database.
Reg. 4 of PIT. TRADING WHEN IN POSSESSION OF UNPUBLISHED PRICE SENSITIVE INFORMATION.:
This reg prohibit the trading/ dealing in securities of the LE when in possession of UPSI.
Explanation –When a person who has traded in securities has been in possession of unpublished price sensitive information, his trades would be presumed to have been motivated by the knowledge and awareness of such information in his possession.
The trading is allowed if the same is pursuant to the trading plan (as per Reg 5 of PIT) approved by compliance officer of the Company.
Reg 6 of PIT. DISCLOSURES OF TRADING BY INSIDERS:
It is intended that disclosure of trades would need to be of not only those executed by the person concerned but also by the immediate relatives and of other persons for whom the person concerned takes trading decisions. These regulations are primarily aimed at preventing abuse by trading when in possession of unpublished price sensitive information and therefore, what matters is whether the person who takes trading decisions is in possession of such information rather than whether the person who has title to the trades is in such possession
Reg 8 of PIT. CODE OF FAIR DISCLOSURE:
This regulation put obligation on the board of directors that Board of every company, whose securities are listed on a stock exchange, shall formulate and publish on its official website, a code of practices and procedures for fair disclosure of unpublished price sensitive information that it would follow in order to adhere to each of the principles set out in Schedule A to these regulations, without diluting the provisions of these regulations in any manner.
Schedule A broadly convers below Principles:
- Prompt public disclosure of UPSI that becomes credible and concrete;
- Uniform and universal dissemination of UPSI;
- Designation of senior officer to deal with disclosure of UPSI;
- Prompt dissemination of UPSI that gets disclosed selectively, inadvertently.
- Fair response to queries raised on news reports and market rumours;
- Ensuring that information shared with analysts and research personnel is not UPSI;
- Developing best practices to make transcripts or records of proceedings of meetings;
- Handling of all UPSI on a need-to-know basis.
Reg 9. (1) of PIT. CODE OF CONDUCT:
This regulation states that the Board of every listed company and the board of directors or head(s) of the organisation of every intermediary shall ensure that the CEO or MD shall formulate a code of conduct with their approval to regulate, monitor and report trading by its designated persons and immediate relatives of designated persons towards achieving compliance with these regulations, adopting the minimum standards set out in Schedule B, in case of a listed company, and Schedule C (in case of an intermediary)] to these regulations, without diluting the provisions of these regulations in any manner.
B. OBLIGATION OF DIRECTOR & LISTED ENTITY IN CASE OF LEAK OR SELECTIVE DISCLOSURE OF ANY UPSI IN MASS MIDEA:
In case there is any leak or suspected leak or communication to mass media of any UPSI which is not generally available to public at large, following shall be the measures to be undertaken by Listed Entity & it’s Board:
Principle 4 of Schedule A read with Regulation 8(1) of SEBI (PIT) Regulations, 2015;
Prompt dissemination of unpublished price sensitive information that gets disclosed selectively, inadvertently or otherwise to make such information generally available.
Clause 4 under Schedule B Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders of SEBI (PIT) Regulations, 20
“The trading window shall be closed when the compliance officer determines that a designated person or class of designated persons can reasonably be expected to have possession of unpublished price sensitive information.”
“Designated persons and their immediate relatives shall not trade in securities when the trading window is closed”
9A(4) Institutional Mechanism for Prevention of Insider trading:
(5) Every listed company shall formulate written policies and procedures for inquiry in case of leak of unpublished price sensitive information or suspected leak of unpublished price sensitive information, which shall be approved by board of directors of the company and accordingly initiate appropriate inquiries on becoming aware of leak of unpublished price sensitive information or suspected leak of unpublished price sensitive information and inform the Board promptly of such leaks, inquiries and results of such inquiries.
Regulation 30(10) of LODR (If any clarification/ response is sought by SEBI):
The listed entity shall provide specific and adequate reply to all queries raised by stock exchange(s), if any, with respect to any events or information.
Regulation 30(11) of LODR (To confirm/ deny any rumours/ news)
The listed entity may, on its own initiative also. confirm or deny any reported event or information to stock exchange(s).
(Pursuant to consultation paper dated 12.11.2022 issued by SEBI, not yet effective) Provided that the top 250 listed entities shall necessarily confirm or deny any event or information reported in mainstream media, whether in print or digital mode, which may have material effect on the listed entity under this regulation.
Explanation: The top 250 listed entities shall be determined on the basis of market capitalization, as at the end of the immediate previous financial year.
Proposed new sub-para 18 in Para A of PART A of Schedule III (only required if there is formal communication or announcement made to mass media):
(Pursuant to consultation paper dated 12.11.2022 issued by SEBI, not yet effective) The LE shall be required to disclose ‘all the communication or announcement made to any mass communication media by Directors or promoters or key managerial personnel or senior management of a listed entity, in relation to the listed entity, which is not already made available in the public domain’ to Stock Exchange within 12 hours.
CONCLUSION:
In view of our above provisions the Listed Entity is required to oblige with below responsibility in relation to UPSI under SEBI (PIT) Regulation:
i. Preserve UPSI: It is the responsibility of the Listed entities and its Directors/ KMP/ Head of Organisation to keep UPSI enveloped/ preserved till the time formal disclosure is made to Stock Exchange. The UPSI should be made available only on ‘need-to-know’ basis.
ii. Prevent: The efforts have to be made to restrict trading in the securities of Listed Entity by a person/ insider while being in possession (for legitimate purpose) of UPSI.
iii. Disclose: Listed Entity shall Promptly disseminate the UPSI to Stock Exchange in case the UPSI gets disclosed selectively, inadvertently or otherwise to make such information generally available.
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