Consultation Paper on Proposed review of the definition of UPSI under SEBI (Prohibition of Insider Trading) Regulations, 2015
SEBI conducted a study on material events disclosed to the stock exchanges and events classified as UPSI by listed entities. It was seen that companies were categorizing only the items explicitly mentioned in Regulation 2(1)(n) of PIT Regulations as UPSI thus not complying with the law in spirit.
Thus, SEBI felt that there exists a need to review the definition of UPSI to bring about regulatory clarity, certainty and uniformity in compliance for the listed companies. Therefore, SEBI had issued a consultation paper seeking public comments on the proposal to amend the definition of UPSI under Regulation 2(1)(n) of PIT Regulations, 2015, to include “material event in accordance with Regulation 30 of LODR Regulations. SEBI did not go ahead with this proposal.
In the meanwhile, SEBI brought changes in timelines and increased threshold for certain disclosure requirements under schedule III of SEBI LODR. Further SEBI also proposed to review provisions relating to trading plan for designated persons making it easy for designated persons to trade in shares of company when in possession of unpublished price sensitive information. As there is certainty in identification of events or information SEBI has now proposed to expand illustrative list of UPSI by including following events or information:
| Sl. No | Events or information | Rationale |
| 1 | Change in Rating(s) | Regarding revision in Ratings, often companies get revalidated letters or same ratings for fresh issue of securities from time to time which generally may not have any impact on the price of shares. Hence, only upward/downward revision may be included in illustrative list of events in the definition of UPSI |
| 2 | Fund raising proposed to be undertakFund raisinen” | The decision with respect to fund raising proposed to be undertaken is currently not included in the definition of UPSI. Therefore, the same is proposed to be included in illustrative list of events in the definition of UPSI. |
| 3 | Agreements, by whatever name called, impacting the management and control of the company” | Only those agreements that impact the management and control of the company and are in the knowledge of the company may be considered as price sensitive and may be included in illustrative list of events in the definition of UPSI |
| 4 | “Fraud or defaults by a listed entity, its promoter, director, key managerial personnel, senior management, or subsidiary or arrest of key managerial personnel, senior management, promoter or director of the listed entity, whether occurred within India or abroad | This information would be considered as UPSI. |
| 5 | “Change in key managerial personnel, other than due to superannuation or end of term, and resignation of a Statutory Auditor or Secretarial Auditor | It is proposed to include resignation of a Statutory Auditor or Secretarial Auditor in the illustrative list in the definition of UPSI. |
| 6 | “Resolution plan/ Restructuring/one-time settlement in relation to loans/borrowings from banks/financial institutions | It is now proposed to be included in the illustrative list in the definition of UPSI |
| 7 | Admission of winding-up petition filed by any party / creditors, admission of application by the corporate applicant or financial creditors for initiation of corporate insolvency resolution process (CIRP) of a listed corporate debtor and its approval or rejection thereof under the Insolvency Code | Not all events in relation to CIRP listed herein above may impact share price, but admission of petition for initiation of CIRP and approval / rejection of resolution plan by NCLT may be price sensitive |
| 8 | Initiation of forensic audit (by whatever name called) by company or any other entity for detecting mis-statement in financials, misappropriation/ siphoning or diversion of funds and receipt of final forensic audit report” | It is proposed to include the above in the illustrative list in the definition of UPSI. For clarity the event/information may be aligned with SEBI FAQs on the types of forensic audit which are required to be disclosed under LODR Regulations |
| 9 | “Action(s) initiated or orders passed by any regulatory, statutory, enforcement authority or judicial body against the listed entity or its directors, key managerial personnel, senior management, promoter or subsidiary, in relation to the listed entity” | Events in Clause 19 and 20 of Para A of Part A of Schedule III may be price sensitive and are proposed to be included in the illustrative list in the definition of UPSI. |
| 10 | mergers, de-mergers, acquisitions, delisting, disposals and expansion of business, award or termination of order/contracts not in the normal course of business and such other transactions”. | Events described in clause 4 of Para B are expected to have a significant impact on the revenue and profitability of a company. Given the potential to Page 15 of 17 impact the financial performance of a company it is recommended to include such events in the illustrative list in the definition of UPSI at Regulation 2(1)(n)(iv) of PIT Regulations. |
| 11 | Outcome of any litigation(s) or dispute(s) which may have an impact on the listed entity” | Initial order and pendency or any litigation is available in the public domain i.e. website of the judicial authority; hence, in the WG’s view this may not be price sensitive. However, the outcome of such litigations or dispute may be price sensitive and may be included in the illustrative list in the definition of UPSI. |
| 12 | Giving of guarantees or indemnity or becoming a surety, by whatever named called, for any third party | Guarantees/indemnity / surety, etc. can be in the usual course of business. Nonetheless there may be instances where such guarantees/indemnity / surety, etc. are not in normal course of business and have the potential to adversely impact the financials of the listed entity. |
| 13 | granting, withdrawal, surrender, cancellation or suspension of key licenses or regulatory approvals | Events in Clause 12 of Para B of Part A of Schedule III may be price sensitive and are proposed to be included in the illustrative list in the definition of UPSI |
The above consultation paper is open for public comments till November 30, 2024. This consultation paper can be accessed at below link:
SEBI’s Proposed Review of UPSI Definition under insider trading Regulations
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Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement
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