Summary: The Securities and Exchange Board of India (SEBI) has proposed changes to the definition of Unpublished Price Sensitive Information (UPSI) under the SEBI (Prohibition of Insider Trading) Regulations, 2015, through a consultation paper issued on November 9, 2024. The existing definition has been criticized for its narrow interpretation by listed companies, which often limits UPSI to illustrative examples such as financial results, dividends, or mergers. To address this, SEBI suggests aligning UPSI with disclosure events outlined under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The proposed amendments add 13 new events, including changes in ratings, fundraising decisions, management control agreements, significant frauds, defaults, auditor resignations, debt restructuring, insolvency proceedings, forensic audits, regulatory actions, major contract changes, litigation outcomes, and license changes. These additions aim to enhance market transparency by broadening the scope of UPSI, ensuring that any information capable of influencing stock prices is disclosed. SEBI emphasizes that such alignment promotes better governance and protects investor interests. The consultation paper invites stakeholders to submit feedback, reinforcing SEBI’s effort to strengthen compliance mechanisms. Read: SEBI’s Proposed Review of UPSI Definition under insider trading Regulations
Proposed amendment in definition of Unpublished Price Sensitive Information under SEBI (Prohibition of Insider Trading) Regulations, 2015
The Securities and Exchange Board of India (SEBI), through its consultation paper dated November 9, 2024, has proposed a significant amendment to the definition of Unpublished Price Sensitive Information (UPSI) under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations).
Despite the inclusive nature of the existing UPSI definition, it has been narrowly interpreted by the listed companies, with many restricting their categorization to the illustrative examples explicitly mentioned in the regulation. This approach often excludes other critical events or transactions outlined under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which could substantially impact the market.
To address this gap, SEBI’s proposal seeks to align the definition of UPSI in the PIT Regulations with the events defined under Regulation 30 of the LODR Regulations.
This alignment seeks to promote uniformity, ensure comprehensive compliance, and uphold the true spirit of the law, thereby enhancing transparency and accountability among listed entities.
Current definition of UPSI under Regulation 2(1)(n) of the PIT Regulations, 2015 –
“It 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 –
i) Financial results;
ii) Dividends;
iii) Change in capital Structure;
iv) Mergers, de-mergers, acquisitions, delisting, disposals and expansion of business and such other transactions;
v) changes in key managerial personnel.”
Recommendations and Proposed Amendments
SEBI has proposed 13 additional events as defined under the Para A and B of Part A of the Schedule III of the SEBI (LODR) regulation, 2015, Regulation 30 for inclusion in the definition of UPSI. The events proposed to be included in the definition of UPSI are as follows:
| Sr. No | Relevant Clause of LODR | Event proposed to be included |
| 1. | Clause 3 of Para A | Change in Rating(s) – Significant changes in rating (upward/downward) should be included in the UPSI list, as revalidations generally don’t impact share prices.
A rating change has the potential to cause significant fluctuations in the prices of the company’s securities due to shifts in perceived risk and valuation as it reflects the creditworthiness and financial health of the company. |
| 2. | Clause 4 of Para A | Decisions pertaining to Fund raising proposed to be undertaken to be included as price sensitive.
These decisions have direct impact on the company’s financial structure, growth potential and market value and hence can significantly influence the investor decision as it changes the perceived value of the company. |
| 3. | Clause 5 of Para A | Agreements (by whatever name called) impacting the management and control of the company which are in the knowledge of the company may be considered as price sensitive. |
| 4. | Clause 6 of Para A and Clause 9 of Para B | Fraud or defaults by a listed entity, its promoter, director, KMP, senior management, or subsidiary or arrest of KMP, senior management, promoter or director of the listed entity, whether occurred within India or abroad to be included in the list.
Defaults or fraudulent activities of significant nature can result in financial losses, legal liabilities, or penalties, adversely affecting the company’s valuation and investor sentiment. |
| 5. | Clause 7 of Para A | Change in KMP other than due to superannuation or end of term, and resignation of a Statutory Auditor or Secretarial Auditor to be included in the list.
Frequent changes in (KMP) and auditors are often considered red flags for companies, as they signify potential instability in management and governance practices such as financial irregularities, lack of strategic direction, internal conflicts which can erode investor confidence and impact the company’s market reputation. |
| 6. | Clause 9 and 10 of Para A | Debt Restructuring – Resolution plan/ Restructuring/one-time settlement in relation to loans/borrowings from banks/financial institutions can be price sensitive.
Modifications in repayment terms, interest rates, or debt covenants influence the company’s financial flexibility and future cash flows, which investors consider critical in evaluating the company’s long-term prospects. |
| 7. | Clause 11 and 16 of Para A | Admission of Winding up and insolvency proceedings
i. Admission of winding up petition filed by any party/creditor. ii. Admission of petition for initiation of CIRP under IBC by NCLT. iii. Approval/Rejection of resolution plan by NCLT under IBC. |
| 8. | Clause 17 of Para A | Initiation of forensic audit (by whatever name called) by company or any other entity for detecting misstatement in financials, misappropriation/ siphoning or diversion of funds and receipt of final forensic audit report.
These highlight significant irregularities in internal controls and the financial report that can directly erode shareholder’s trust. |
| 9. | Clause 19 and 20 of Para A | Action(s) initiated, or orders passed by any
regulatory, statutory, enforcement authority or judicial body against the listed entity or its directors, KMP, senior management, promoter or subsidiary, in relation to the listed entity This aims to enhance transparency of disclosure among the shareholders, providing them insights of the compliance risk in the company. |
| 10. | Clause 4 of Para B | Award or termination of order/contracts not in the normal course of business and such other transactions.
Contracts of substantial nature in terms of value/service have direct impact on the operational performance of the company, thereby influencing the revenue and profitability of the company. |
| 11. | Clause 8 of Para B | Outcome of any litigation(s) or dispute(s) which may have an impact on the listed entity
Certain litigations have the potential to directly affect the company’s operational performance, financial results, and overall stability. Consequently, many investment decisions are heavily influenced by the potential outcomes of such disputes, as they affect risk assessments and future valuations. |
| 12. | Clause 11 of Para B | Giving of guarantees or indemnity or becoming a surety, by whatever named called, for any third party’
When a company provides guarantees or indemnities, it assumes a contingent liability. If the third-party defaults, the company might be required to fulfil these obligations, potentially straining its financial resources. |
| 13. | Clause 12 of Para B | Granting, withdrawal, surrender, cancellation or suspension of key licenses or regulatory approvals.
Their withdrawal or suspension could lead to operational disruptions, production halts, or service interruptions, directly affecting revenue and profitability. Granting of new licenses may indicate expansion opportunities, enhancing growth potential and investor confidence. |
Conclusion
These events have the potential to affect a company’s financial health, capital structure, stability, operational performance, and market value. These factors can significantly influence stock prices and investor sentiment. As such, they should be classified as price-sensitive information under SEBI (PIT) Regulations, with due consideration given to the extent of their impact involved by specific the threshold limits.
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