What is Insider Trading?
Insider trading is defined as using unpublished price sensitive information to deal in securities of a company for one’s own benefit.
Implementation stage of Insider Trading Regulation in India
Who is Insider?
As per Regulation 2(1)(g) of the SEBI (Prohibition of Insider Trading) Regulations, 2015– Insider is a Person who is “Connected” with the company, who could have the Unpublished Price Sensitive information (UPSI) or receive the information from somebody in the company.
Note- The term connected person is defined in regulation 2(1)(d) of the SEBI (Prohibition of Insider Trading) Regulations, 2015, which includes the following person:
What is Unpublished Price Sensitive Information?
As per Regulation 2(1) (n) of the SEBI (Prohibition of Insider Trading) Regulations, 2015-
“unpublished price sensitive information” means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating to the following: –
When Communication and Procurement of UPSI is Permitted? (Regulation 3)
No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.
Note- The Term “legitimate purpose” shall include sharing of unpublished price sensitive information in the ordinary course of business by an insider with partners, collaborators, lenders, customers, suppliers, merchant bankers, legal advisors, auditors, insolvency professionals or other advisors or consultants, provided that such sharing has not been carried out to evade or circumvent the prohibitions of these regulations.
Trading when in possession of unpublished price sensitive information
General Rule- No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information.
Exceptions of General Rule- (Regulation 4)
Trading Plans (Regulation 5)
DISCLOSURES OF TRADING BY INSIDERS-
Initial Disclosures: Every person on appointment as a key managerial personnel or a director of the company or upon becoming a promoter or member of the promoter group shall disclose his holding of securities of the company as on the date of appointment or becoming a promoter, to the company within seven days of such appointment or becoming a promoter.
Disclosure to Stock Exchange-
CODES OF FAIR DISCLOSURE AND CONDUCT-
|Code of Fair Disclosure (Regulation 8)||Code of Conduct (Regulation 9)|
|Formulated by Board of Directors of every Listed Company||Formulated by Board of Directors of every Listed Companies, market intermediaries & all other persons (including professional firms, auditors, consultants etc.) who are essentially in possession of UPSI.|
|Policies shall be framed in accordance with Schedule A & Publish on its website.||Policies shall be framed in accordance with Schedule B & Publish on its website.|