Summary: The Securities and Exchange Board of India (SEBI) has been refining the definition of Unpublished Price Sensitive Information (UPSI) under its Prohibition of Insider Trading (PIT) Regulations, 2015. Initially linked to material events under listing agreements, the definition has evolved to exclude general materiality while focusing on price-sensitive disclosures. In 2023, SEBI introduced quantitative thresholds for determining materiality and proposed aligning UPSI with Regulation 30 events under SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations. However, based on industry feedback, SEBI identified events like litigations, credit ratings, and shareholder agreements as key candidates for UPSI designation.
Despite regulatory efforts, companies often fail to categorize significant events like acquisitions or revenue-driving deals as UPSI, resulting in missed compliance and insider trading oversight. SEBI’s analysis highlighted that only a fraction of press releases with significant market impact were labeled UPSI. This gap hinders SEBI’s ability to investigate insider trading effectively. To address this, SEBI issued a consultation paper proposing an expanded, explicit list of UPSI events while acknowledging the challenge of creating a one-size-fits-all framework.
Given the dynamic nature of industries, SEBI emphasizes the need for companies to develop customized UPSI identification frameworks in collaboration with key personnel. This tailored approach aims to balance regulatory clarity with the unique operational contexts of different sectors. The consultation reflects SEBI’s proactive stance on curbing insider trading and enhancing transparency in listed companies.
1. Evolution of UPSI:
The definition of Unpublished Price Sensitive Information (UPSI) under SEBI’s regulations has evolved significantly to enhance sensitivity about price sensitive information and prohibition of insider trading. As per the Securities and Exchange Board of India (SEBI) Prohibition of Insider Trading Regulations, (PIT) 2015, UPSI initially covered material events in accordance with the listing agreement based on recommendation of 2017 FMC committee constituted by Sebi. But they believed all material events may not be UPSI and hence approved to remove the same from the definition.
Further, in March 2023 SEBI introduced quantitative thresholds for determining materiality to ensure uniform compliance across companies and later in May 2023 came up with a consultation paper where it was proposed to include material events under regulation 30 of SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015 as UPSI. But on the feedback from the Indian inc. ,the Working Group discussed each event/information listed in Para A and Para B of Part A of Schedule III of LODR to identify few events that may potentially be price sensitive and recommended including litigations, penalty, credit rating etc certain types of agreements (e.g., shareholder and joint venture agreements), and major legal outcomes, as these can materially impact a company’s stock price. SEBI’s revisions may be aimed to align or to distinguish the UPSI definition with significant events under Regulation 30 of the SEBI LODR ensuring clarity for listed entities and investors.
II. Need for revision of UPSI:
We have tried to collate some interesting relevant pointers form the consultation paper issued by SEBI[i] in May 2023 which made SEBI revisit their decision and include certain regulation 30 of SEBI LODR events as UPSI
- Events having a potential impact on company but not considered as UPSI:
On multiple instances, it has been observed that an information/event which should have been categorised as UPSI was not done so by the listed entity. A few examples as noted by SEBI, wherein the information despite of being UPSI was not categorised so, are as under:
3.2.1. A company acquired another company and made the announcement through a press release. The press release claimed that the said acquisition would help grow a particular business vertical, thereby indicating that the acquisition was likely to have direct impact on revenue and profits. Upon this announcement, the share price of the company increased by 4.79% in 1 trading day.
3.2.2. A company won a deal, the largest ever in the history of a particular vertical in that company. The company itself claimed that the deal will propel revenue growth in that particular vertical. Upon this announcement, the share price of the company increased by 6.09% in 1 trading day.
- Events which purportedly sought market reaction but were not considered as UPSI:
Thus, it was seen that, out of 1,099 press releases, in 227 instances, the price movement in the scrip, adjusted for movement in the Nifty/Sensex, was more than 2%. However, of these 227 instances, merely 8% (18) press releases were categorised as UPSI by the listed companies.
- Events having potential of impact on performance and not so ordinary events:
It was further observed that the nature of information released/ announcement made in several of these press releases, indeed warranted it to be categorised as UPSI. However, the same was not categorised as UPSI by the entities. A few kinds of announcement made in these press releases which warranted to be categorised as UPSI are as under:
3.6.1. Sales/production related press release.
3.6.2. Potential investments by the listed company, regulatory approvals, etc.
3.6.3. Expansion of business including brand acquisitions, product launches, etc.
3.6.4. Strategic tie-ups
- Insider trading was not identified due to non UPSI identification:
It was observed from the analysis that, by and large companies categorised only the items explicitly mentioned in Regulation 2(1)(n) of PIT Regulations as UPSI. The market feedback also suggested that most companies consider this to be a ‘uniform practice’ since this is explicitly articulated in PIT Regulations.
Further, SEBI’s surveillance system also generates a significant number of alerts on suspected insider trading cases where it was observed that a substantial number of entities made notional profits, sometimes exceedingly even Rupees Twenty-five crores. However, a significant number of these alerts could not be taken up for further examination by SEBI due to non-categorization of material information as UPSI, by the listed companies. Therefore, SEBI’s efforts towards curbing insider trading is hampered by the non-categorization of material information as UPSI by the listed companies
SEBI observed that there are no systems for identification of UPSI and started asking questions Managing Directors. In recent past there have been 3 such instances in wherein the questioned had to settle the matter with SEBI. For any regulator, enforcement is the last option, and having a constructive approach, SEBI revisited the UPSI list and issued consultation paper to widen the explicit list of UPSI. For SEBI also, it is difficult to give an explicit list of UPSI considering the demographics and dynamic factors such as size, sector and type of industry.
Hence, based on their analysis, they are proposing the addition of those event in the explicit part of UPSI which warrant to affect the price of the securities materially.
III. Is the Given list of UPSI good enough?
An interesting question whether explicit list of events under all circumstances would be considered as UPSI and the events which are not considered explicitly not covered would they ever be UPSI. Let’s try to evaluate this with few illustrations:
- Whether in manufacturing companies, routine capital expenditures (capex) may be considered ordinary and not UPSI?
- Whether in the finance industry, routine fundraising activities are typically not UPSI, while acquiring a new loan portfolio could be?
- For engineering firms, is awarding a new material order in not so normal course of business? Will it qualify as UPSI? And in comparison, to the same whether a new order in service industry may be considered UPSI?
- Can a director resignation be a UPSI or resignation due to governance concern be a UPSI?
- Can 1 lakh penalty be UPSI or a linkage to PAT of penalty which can portray impact of financial performance of the company be a parameter to UPSI?
MMJC Conclusion:
This above illustration depicts that it is not so easy for SEBI to provide with definition or list of UPSI which is ideal or comprehensive or appropriate in nature for any company. Therefore, there is dire need of objectively crafting customised list/ parameters for determination of USPI and more importantly not be considered as UPSI. This can be done in great consultation with the head of relevant employees.
Notes:-
[i] Consultation Paper on proposed review of the definition of Unpublished Price Sensitive Information (UPSI) under SEBI (Prohibition of Insider Trading) Regulations, 2015 to bring greater clarity and uniformity of compliance in the ecosystem issued on 18th May 2023.
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The article is written by Ms. Yashika Dharamshi – Associate Director – [email protected] and Mr. Saurabh Agarwal – Partner – [email protected].
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