In the backdrop of several highlighted instances of suspected leakage of unpublished price sensitive information (UPSI) and suspected trades on the basis of such information by persons privy to such information SEBI has issued the SEBI (Prohibition of Insider Trading) Amendment Regulations, 2018 on 31st December, 2018 and the amendments will take effect from 1st April, 2019, i.e. the effective date.

These major amendments are implemented by SEBI on the recommendation of Expert Committee chaired by Dr. T. K. Vishwanathan, Ex-Secretary General, Lok Sabha and Ex- Law Secretary, Govt. of India.

From compliance perspective the author has summarized the steps to be taken to comply with the Amended PIT Regulations. Summary of the new requirements and steps to be taken is chalked out as under:

♦ Company’s Policies: Company needs to frame a “Policy for Determination of Legitimate Purposes”, wherein “Legitimate purpose” includes sharing of unpublished price sensitive information (UPSI) by an insider with partners, collaborators, lenders, customers, suppliers, merchant bankers, legal advisors, auditors,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. The revised code of fair disclosure incorporating the policy for determination for legitimate purposes needs to be intimated to the stock exchanges and uploaded on company’s website

♦ Information sharing: Apart from sharing of information for legitimate purpose, unpublished price sensitive information can only be shared if the Board is of informed opinion that it will be in the best interests of the Company & the same information would be made generally available within 2 days.

♦ Digital database of persons having UPSI: The Board of Directors is now required to ensure that the Company maintains a structured digital database of persons with whom unpublished price sensitive information is shared along with PAN Number of such persons. Such database to have time stamping and audit trail.

♦ Stricter provision: In case of any transaction in shares by any person while in possession of unpublished price sensitive information, it shall be presumed that such trade is motivated by the exclusive information for whatever reason it may have been executed. Onus shall be on the person to prove innocence before the Court of law.

♦ Direct responsibility of Managing Director/CEO: The Board of Directors is required to ensure that the MD / CEO of the Company frames a Code of Conduct with their approval to regulate, monitor and report trading by designated person or immediate relatives thereof.

♦ Code of conduct to be framed by other parties/firms/consultants having access to/ handling unpublished price sensitive information of our Company, like Auditor firms, Consultants, Law firms, Bankers, Advisors etc. so that their employees do not misuse UPSI for insider trading.

♦ Identify and designate a Compliance Officer to administer the Code of Conduct and requirements of the Regulations.

♦ Designated Persons: The Board of Directors in consultation with the Compliance Officer has to specify “Designated Persons” basis their role & function & access to UPSI, which shall include –

  • Employees of the Company
  • All Promoters of the Company
  • CEO and Employees upto 2 levels below CEO (whether having access to UPSI or not is immaterial)
  • Any support staff such as IT staff or Secretarial staff

♦ Internal Control Systems: New requirement places responsibility on the Managing Director an CEO to put in place adequate and effective system of internal controls to ensure compliance with the requirements of SEBI (Prohibition of Insider Trading) Regulations and to prevent insider trading.

♦ Internal controls shall include –

  • Identification of all employees having access to UPSI as designated employees
  • All UPSI to be identified and confidentiality maintained
  • Restriction on communication or procurement of UPSI shall be placed
  • List of employees with whom UPSI is shared to be maintained and confidentiality agreements or notice to be served on them
  • Periodic process review to evaluate effectiveness of internal controls.

♦ The Board shall ensure that the Managing Director or the CEO shall ensure compliance with these requirements.

♦ Further, the Audit Committee shall review compliance with the Regulations at least once in a financial year and verify that internal control systems are adequate and operating effectively.

♦ Company has to frame a written policy and procedure for inquiry in case of leakage or suspected leakage of unpublished price sensitive information, which is to be approved by the Board of Directors. In such an eventuality requirement is to start the inquiry process and inform the SEBI on such leak, inquiry and result of such inquiry.

♦ The Minimum Standards for Code of Conduct for Listed Companies to Regulate, Monitor and Report Trading by Designated Persons, have been amended having the following implications –

  • Compliance Officer to report to the Board of Directors and Chairman of Audit Committee at such frequency as decided by the Board (but atleast once in a year)
  • UPSI can be communicated only on need to know basis and for legitimate purposes.
  • Designated Persons and their immediate Relatives to be governed by internal code of conduct of the Company. They shall not trade while trading window is closed.
  • Trading restriction period (read Trading Window Closure) can be made applicable from end of every quarter till 48 hours after declaration of financial results. The gap between clearance of accounts by audit committee and board should be as narrow as possible (preferably same day) to avoid leakage of UPSI.
  • Code of conduct to specify a period (not being less than 6 months) during which a designated person cannot do contra trade.
  • Code of conduct shall specify the formats approved by the Board of Directors for

> Application for pre-clearance of trades,

> Reporting of trades,

> Reporting of not trading in case pre-clearance of trading was obtained,

> Reporting of holding in securities periodically.

  • Code of conduct shall specify – Disciplinary actions (wage freeze, suspension, recovery / clawback etc. that may be imposed on violation of the code.
  • Code of conduct shall specify that in case of violation of the Regulations is observed by the Listed Entity it shall promptly inform the SEBI.
  • Designated persons shall be required to disclose name and PAN or any other identifier authorized by law of the following persons to the company on an annual basis and as and when the information changes:
    • immediate relatives
    • persons with whom such designated person(s) shares a material financial relationship
    • Phone, mobile and cell numbers which are used by them
    • In addition, the names of educational institutions from which designated persons have graduated and names of their past employers shall also be disclosed on a one time basis.
    • Explanation – The term “material financial relationship” shall mean a relationship in which one person is a recipient of any kind of payment such as by way of a loan or gift during the immediately preceding twelve months, equivalent to at least 25% of such payer’s annual income but shall exclude relationships in which the payment is based on arm’s length transactions.”] [wef 1-Apr-19]
  • Listed entities shall have a process for how and when people are brought ‘inside’ on sensitive transactions. Individuals should be made aware of the duties and responsibilities attached to the receipt of Inside Information, and the liability that attaches to misuse or unwarranted use of such information.

SEBI (Prohibition of Insider Trading) Amendment Regulations, 2019

Further to issuance of the SEBI (Prohibition of Insider Trading) Amendment Regulations, 2018, the SEBI has issued the SEBI (Prohibition of Insider Trading) Amendment Regulations, 2019 on 21st January, 2019 and the amendments will take effect immediately, i.e. from 21st January, 2019. Vide this amendment the words “promoter group” as defined in ICDR Regulations has been inserted in the definition clause of PIT Regulations and the words “member of the promoter group”, been inserted in Regulation 7(1)(a) & 7(2)(a) and the words “promoter or member of the promoter group” been inserted in Regulation 7(1)(b).

These amendments will put the following responsibilities on the promoter group –

[Initial Disclosures]

  • Regulation 7(1)(a) – All members of the promoter group are required to furnish their shareholding position as on 21st January, 2019 to the Company within 30 days thereof.
  • Regulation 7(1) (b) – On becoming a promoter or member of the promoter group, such person is now required to furnish their shareholding position as on date of becoming so, to the Company within 7 days thereof.

[Continual Disclosures]

Regulation 7(2)(a) – Members of the promoter group are now required to report trades in excess of Rs.10 Lacs to the Company within 2 trading days which are to be onward intimated by the Company (including Company becoming aware of such trades) to the exchanges within further 2 trading days.

Disclaimer: Interpretation of the Author are his personal views and the same are being published in academic interests only.

Author profile:Abhishek Seth

Abhishek Seth is a Company Secretary & Masters in Economics from Calcutta University. He is currently associated with Albert David Ltd., Kolkata as Asstt. Company Secretary. Email: cs.abhishekseth@gmail.com.

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