The listed entity has to ensure that they adhere to the policy of Insider Trading at all times. In these days we witness no.of such cases pertaining to the involvement of Senior Management personnel itself. The defenses mechanism adopted by the violator is ignorance of policy in place.
“Does ignorance of law is an excuse”?
SEBI is very determined in its approach. The penalty imposed is running in crores excluding interest. It also calculates notional gain aroused in the trade. The regulator doesn’t distinguish between CEO/lower grade employee. A violator is a violator for all practical purposes. The impact on the such listed companies is enormous. It is not only a monetary loss but their reputation is also at risk.
Similarly, we have witness one such case wherein the portfoilio manger of the Independent director of a company has traded during window closure. Either the director or on his/her behalf any person has committed a violation, the onus falls on the individual director.
It is always better for the Company to intimate the Stock Exchanges on suo-motto basis, rather than the regulator initiating the case.
The heart and soul of this compliance falls on the shoulder of the Company Secretary who also acts as a Compliance Officer. He/she has to educate the employees at all cadre from complying with the Regulation. Also, to mention the outcome of such non-compliance.
The listed entity in its policy shall categorically mention the class of Designated person(DP). The regulation has covered few employees as DP’s.
The cause for Senior Management Personnel to violates the regulation is that they are in receipt of price sensitive information which is unpublished.
Does all material information have an impact on the price of the scrip ?
Generally, all listed entity will frame a materiality policy. Based on it will be demarcated between materiality and materiality which are price sensitive in nature. The creamy layer in the organization are in receipt of price sensitive information , so they tend to capitalize the opportunity to the optimum level.
To sum up, the Compliance officer shall educate the following to their employees.
1. To refrain from trading in the securities of the Company during trading window closure -Violation
2. To intimate the Compliance officer within 2 trading days from the date of trade by any Designated person-Non -compliance
3. To abstain from trading of securities of the Company while in receipt of PSI – Violation
4. Not to indulge in contra trade within a period of 6 months in the scrip of the Company.- Violation.