SEBI re-writes it’s more than two decades old Insider Trading Regulation and announced the new SEBI (Prohibition of Insider Trading) Regulations, 2015 on 15th January, 2015 which is to come in force on 120th day of its publication i.e., from 15th May, 2015 with many major changes in it.
The Insider trading regulation took its role for the India Inc for the first time in the year 1992. Parallely, if we look at developed country like USA, they have no separate Regulation for Prohibiting Insider Trading. It relies instead on General SEC Provisions.
Now the questions comes to our mind are
Why SEBI has to take the move to re-write its old regulation??
Was there not enough provisions to catch hold the defaulters??
The problematic thing I look is,
The access to sensitive information with relates to the company’s operations and business being a big worry for the regulator. The intention is very clear to make the market more secure and to bring wrong doers in lime light. With this intention SEBI came up with the new Regulation.
With the Regulation not having so far, India Inc is trying to adopt it with many complexities in it. Corporate’s would face tough challenge to keep a track and monitor each and every movement of its employees, Directors and other personnel.
Any person who is or has during the six months prior to the concerned act been associated with a company, directly or indirectly, in any capacity including by reason of frequent communication with its officers or by being in any contractual, fiduciary or employment relationship or by being a director, officer or an employee of the company or holds any position including a professional or business relationship between himself and the company whether temporary or permanent, that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access.
The persons falling within the following categories shall be deemed to be connected persons unless the contrary is established, –
(a) An immediate relative of connected persons; or
(b) A holding company or associate company or subsidiary company; or
(c) An intermediary as specified in section 12 of the Act or an employee or director thereof; or
(d) An investment company, trustee company, asset management company or an employee or director thereof; or
(e) An official of a stock exchange or of clearing house or corporation; or
(f) A member of board of trustees of a mutual fund or a member of the board of directors of the asset management company of a mutual fund or is an employee thereof; or
(g) A member of the board of directors or an employee, of a public financial institution as defined in section 2 (72) of the Companies Act, 2013; or
(h) An official or an employee of a self-regulatory organization recognized or authorized by the Board; or
(i) A banker of the company; or
(j) A concern, firm, trust, Hindu undivided family, company or association of persons wherein a director of a company or his immediate relative or banker of the company, has more than ten per cent of the holding or interest;
The intent was to ensure that merely because a person does not hold any official position with a listed company but is otherwise completely involved with its operations and is an insider to decision making should not escape the scope and reach of the definition. This intends to treat even public servants and persons holding statutory positions that are reasonably expected to have access to UPSI as connected persons and thereby prohibit them from trading when in possession of UPSI
“Information that is accessible to the public on a non-discriminatory basis”.
Information published on the website of a stock exchange, would ordinarily be considered generally available.
The intention of the regulator looks simple in the plain reading but when implemented would create lot more situations which required clear attention.
It includes spouse of a person, and includes parent, sibling, and child of such person or of the spouse, any of whom is either dependent financially on such person, or consults such person in taking decisions relating to trading in securities.
The intention of the regulator is to reduce the number of relatives by bringing the aspect of immediate relative and those who are financially dependent.
Means any person who is:
i. a connected person; or
ii. in possession of or having access to unpublished price sensitive information (UPSI);
It is intended that anyone in possession of or having access to unpublished price sensitive information should be considered an “insider” regardless of how one came in possession of or had access to such information. Various circumstances are provided for such a person to demonstrate that he has not indulged in insider trading.
Unpublished price sensitive information (UPSI): Reg. 2(n)
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: –
(i) financial results;
(iii) change in capital structure;
(iv) mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other transactions;
(v) changes in key managerial personnel; and
(vi) material events in accordance with the listing agreement.
It is intended that information relating to a company or securities, that is not generally available would be unpublished price sensitive information if it is likely to materially affect the price upon coming into the public domain.
Means and includes:
Subscribing, buying, selling, dealing, or agreeing to subscribe, buy, sell, deal in any securities, and “trade” shall be construed accordingly.
Dealing vs. Trading
“Dealing in securities” means an act of subscribing, buying, selling or agreeing to subscribe, buy, sell or deal in any securities…
“Trading” means and includes subscribing, buying, selling, dealing, or agreeing to subscribe, buy, sell, deal in any securities…
Explanatory Note says
– SEBI Act uses ‘dealing in securities’, hence “trading” definition included dealing
– Intended to curb activities such as ‘pledging’ when in possession of UPSI
The intention might have been to regulate the promoter financing through dealing in securities when receipt of UPSI.
|Existing personnel||On Appointment|
|§ Promoter§ KMP
|§ Being promoter§ KMP
|Within 30 days of regulation taking effect||Within 7 days of appointment or becoming a promoter.|
|Applicable to every company whose securities are listed on any recognized stock exchange.|
|Disclosure to company||Disclosure to stock exchange|
|§ Promoter§ Employee
|§ Company whose securities are listed.|
|Within 2 trading days of such transaction||Within 2 trading days of receipt of disclosure or from becoming aware of|
|Aggregate traded value over any calendar quarter in excess of ten lakh rupees or such other value as may be specified.|
An enabling provision for listed company to seek information from whom it has to provide UPSI
A listed company may ask that a management consultant who would advise it on corporate strategy and would need to review unpublished price sensitive information, should make disclosures of his trades to the company.
Trading in securities shall also include trading in derivatives of securities
|S.NO||TRADING PLAN (Reg. 5) (Newly Introduced)|
|1.||An insider entitled to formulate a trading plan.|
|2.||Review, monitor and approval of the trading plan from compliance officer.|
|3.||Public Disclosure of trading plan.|
|4.||Statutory Cool- off period of six months.|
|5.||Entail trading for a period of not less than twelve months.|
|6.||Restriction in trading between§ 20th day prior last day of any financial period for which results to be announced.
§ 2nd trading day after disclosure of financial results
|7.||Single plan at a time|
|8||Certain disclosures to be made in the trading plan like§ Either value of trades to be effected or
§ Number of securities to be traded.
§ Nature of trade and interval.
§ Date of effect of trade.
|9.||Not entail trading in securities for market abuse.|
|10.||Trading plan once approved shall be irrevocable and have to mandatorily implement.Provided that
-Implementation of trading plan shall not be commence if any UPSI at the time of formulation has not become generally available.
|11.||Notify the plan to the stock exchange by compliance officer.|
The 2015 Regulations, that come into effect on May 15, 2015, have primarily been brought out by SEBI to clean up the market practices and maintain hygiene.
The new insider trading Regulations calls for higher degree of compliance and monitoring in order to be equipped with suitable facts about any trade undertaken by a potential insider. Since SEBI has made it extremely clear that the onus of proof that a person was not motivated by UPSI to trade in the securities of a listed entity would lie with the alleged insider. These overreaching rules could possibly render any highly placed finance person associated with listed companies an easy target for accusation of insider trading.
Be careful when you share any information about the company with any person be it your friends, immediate relatives or any other person. You can be guilty of Insider trading Regulation..!!
(Author can be reached at [email protected])