CS Vinita Nair

SEBI on January 15, 2015 issued SEBI (Prohibition of Insider Trading) Regulations, 2015[1] (Regulations, 2015) which is to come into force on 120th date of its publication in Official Gazette. SEBI (Prohibition of Insider Trading) Regulation, 1992[2] (Regulations, 1992) shall stand repealed. This has been issued based on submission of report of high level committee (Committee) set up under the Chairmanship of Mr. N K Sodhi, Former chief justice of high courts of Kerala and Karnataka and former Presiding Officer of the Securities Appellate Tribunal [3] on 7th December, 2013.

Particulars
Regulations, 2015
Regulations, 1992
Rationale given by Committee
Chapter I
Preliminary
Definition of compliance officer Regulation 2(c)
“compliance officer” means any senior officer, designated so and reporting to the board of directors or head of the organization in case board is not there, who is financially literate and is capable of appreciating requirements for legal and regulatory compliance under these regulations and who shall be responsible for compliance of policies, procedures, maintenance of records, monitoring adherence to the rules for the preservation of unpublished price sensitive information, monitoring of trades and the implementation of the codes specified in these regulations under the overall supervision of the board of directors of the listed company or the head of an organization, as the case may be;
Not defined in the Regulations
 
Definition of connected person (Regulation 2(d))
(i) 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himself and the company whether temporary or permanent, that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access.
 
(i) is a director, as defined in clause (13) of section 2 of the Companies Act, 1956 (1 of 1956), of a company, or is deemed to be a director of that company by virtue of sub-clause (10) of section 307 of that Act or
(ii) occupies the position as an officer or an employee of the company or holds a position involving a professional or business relationship between himself and the company whether temporary or permanent and who may reasonably be expected to have an access to unpublished price sensitive information in relation to that company:
Explanation :—For the purpose of clause (c), the words “connected person” shall mean any person who is a connected person six months prior to an act of insider trading;
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
Definition of person is deemed to be a connected person:
Not separately defined, included in above definition
(ii) Without prejudice to the generality of the foregoing, 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 specified in clause (i); 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 recognised 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;
(i) is a company under the same management or group, or any subsidiary company thereof within the meaning of sub-section (1B) of section 370, or sub-section (11) of section 372, of the Companies Act, 1956 (1 of 1956) or sub-clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969) as the case may be; or
(ii) is an intermediary as specified in section 12 of the Act, Investment company, Trustee Company, Asset Management Company or an employee or director thereof or an official of a stock exchange or of clearing house or corporation;
(iii) is a merchant banker, share transfer agent, registrar to an issue, debenture trustee, broker, portfolio manager, Investment Advisor, sub-broker, Investment Company or an employee thereof, or is member of the 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 who have a fiduciary relationship with the company;
(iv) is a Member of the Board of Directors or an employee of a public financial institution as defined in section 4A of the Companies Act, 1956; or
(v) is an official or an employee of a Self-regulatory Organisation recognised or authorised by the Board of a regulatory body; or
(vi) is a relative of any of the aforementioned persons;
(vii) is a banker of the company.
(viii) relatives of the connected person; or
(ix) is a concern, firm, trust, Hindu undivided family, company or association of persons wherein any of the connected persons mentioned in sub-clause (i) of clause (c), of this regulation or any of the persons mentioned in sub-clause (vi), (vii) or (viii) of this clause have more than 10 per cent of the holding or interest;
Comments
o    Sister concern, other group companies out of the scope.
o    Relatives replaced with immediate relatives. The definition differs from the definition of relative under Section 2 (77) of Companies Act, 2013. Children’s spouse excluded, Brother-in-law, sister-in-law, father-in-law, mother-in-law included.
o    Banker whether would mean Banker or Executive of Bank, is not clear.
Definition of ‘generally available information’ (Regulation 2(e))
means information that is accessible to the public on a non-discriminatory basis;
 
Not a defined term
Information capable of being accessed without any breach of law. Interesting examples have been provided in the Report.
Definition of immediate relative
(Regulation 2(f))
means a 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
 
relative” means a person, as defined in section 6 of the Companies Act, 1956 (1 of 1956);
Frequent communication with a connected person who is in possession of UPSI and trading during such possession would point to consultation with the connected person for purposes of trading decisions .
Such immediate relatives will indeed have an opportunity to demonstrate that despite being an immediate relative in such a position , could not reasonably be expected to have had access to the UPSI
Insider
(Regulation 2(g))
means any person who is:
i) a connected person; or
ii) in possession of or having access to unpublished price sensitive information;
 
means any person who,
(i) is or was connected with the company or is deemed to have been connected with the company and is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company, or
(ii) has received or has had access to such unpublished price sensitive information
Anyone who is in possession of UPSI should be an insider provided the terms “UPSI” and “generally available information” are well defined.
Comments
o    Definition of insider has been revised to mean all connected person to be an insider, irrespective of whether such person is expected to have access to UPSI or not.
o    Further, the onus of showing that a certain person was in possession of or had access to UPSI at the time of trading would, therefore, be on the person leveling the charge
Definition of Promoter
(Regulation 2(h))
 
shall have the meaning assigned to it under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 or any modification thereof[4]
Not a defined term. For the purpose of Regulation 13, words “promoter” and “promoter group” shall have the same meaning as assigned to them in terms of regulations
framed under clause (h) of sub-section (2) of section 11 of the Act.
Comments
Earlier the meaning of promoter was as specified under SEBI Takeover regulations. Takeover regulations in turn define promoter as meaning provided in SEBI (ICDR) Regulations, 2009.
Definition of securities
(Regulation 2(i))
shall have the meaning assigned to it under the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or any modification thereof except units of a mutual fund;
Not a defined term
The Committee concluded that the term “securities” is well defined in the SCRA and that therefore, it would not be necessary to re-invent the wheel .
Comments
The term as defined under the proposed regulations forming part of report of Committee did not exclude units of mutual fund. The intent to exclude units of mutual fund does not seem to be clear.
Definition of trading
(Regulation 2(l))
means and includes subscribing, buying, selling, dealing, or agreeing to subscribe, buy, sell, deal in any securities, and “trade” shall be construed accordingly
 
dealing in securities” means an act of subscribing, buying, selling or agreeing to subscribe, buy, sell or deal in any securities by any person either as principal or agent
·  Prohibition in “dealing” when in possession of UPSI would result in a prohibition on pledging of shares by any person in possession of UPSI.
· Getting securities dematerialized, creating an encumbrance, agreeing not to dispose of the securities without another person’s consent such as a lender, would all be acts of “dealing” in securities.
· Intent is to prohibit “insider trading”.
Definition of unpublished price sensitive information
( UPSI) (Regulation 2(n))
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, 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.
 
 
“price sensitive information” means any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company.
Explanation.—The following shall be deemed to be price sensitive information :—
(i) periodical financial results of the company;
(ii) intended declaration of dividends (both interim and final);
(iii) issue of securities or buy-back of securities;
(iv) any major expansion plans or execution of new projects.
(v) amalgamation, mergers or takeovers;
(vi) disposal of the whole or substantial part of the undertaking;
(vii) and significant changes in policies, plans or operations of the company
(k) “unpublished” means information which is not published by the company or its agents and is not specific in nature.
Explanation.—Speculative reports in print or electronic media shall not be considered as published information.]
· UPSI is essentially information that is not generally available which on becoming generally available, would materially affect the price of securities to which it relates
·         Whether or not a piece of information is generally available or is unpublished would necessarily be a mixed question of fact and law.
· Information about the repetition of the same event on predictable lines would not render it to be UPSI unless deviated from.
Comments
o    KMP, since not defined in Regulations, 2015 will bear meaning as provided in Companies Act, 2013
o    Changes in KMP and material events as per clause 36 of listing agreement has been added.
Other changes in definition
Takeover regulations – to mean SEBI (SAST) Regulations, 2011;
Trading day- to mean a day on which Recognised Stock Exchange is open for trading.
Definition of body corporate, investigating authority, officer of a company, relative, stock exchange removed.
 
Words and expressions used and not defined in these regulations but defined in the SEBI Act, 1992, SC (R)A, 1956, the Depositories Act, 1996 or the Companies Act, 2013 (18 of 2013) and rules and regulations made thereunder shall have the meanings respectively assigned to them in those legislation.
No such specific mention
Chapter II
RESTRICTIONS ON COMMUNICATION AND TRADING BY INSIDERS
PROHIBITION ON DEALING, COMMUNICATING OR COUNSELLING
Communication or procurement of unpublished price sensitive information
(Regulation 3)
·         No insider shall communicate, provide or allow access to any UPSI relating to Company or securities listed or proposed to be listed to any person including other insiders except where such communication is for legitimate purposes, performance of duties or discharge of legal obligations.
·         The intent is to ensure that insiders handle such UPSI with care and deal with such information strictly on need-to-know basis.
·         UPSI may be communicated in cases of
o    open offer obligation;
o    Where Board if of informed opinion that the proposed transaction is in the best interests of the company and the information that constitute UPSI is disseminated to be made generally available atleast two trading days prior to the proposed transaction being effected.
o    The Board shall require parties to execute non disclosure agreements to contract confidentiality and such parties shall except for aforesaid exceptions not trade in securities when in possession of UPSI
·         No insider was to communicate, counsel or procure directly or indirectly any UPSI to any person. Communication required in the ordinary course of business or profession or employment or under any law.
·         Companies were restricted from dealing in securities of another company or associate of that other company while in possession of UPSI.
·         Section 458 of Companies Act, 2013 delegates powers to SEBI to prosecute insider trading in securities of listed and companies which intend to get their securities listed. Therefore, entities that intend to get their securities listed also covered.
·         In order to maintain hygiene in the market place it is necessary to ensure that UPSI is not handled lightly and is handled only on a need to know basis and is not communicated except where necessary.
·         Therefore, the Committee decided to retain the general prohibition on communication or counseling UPSI
Trading when in possession of unpublished price sensitive
information. (Regulation 4)
·         No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of UPSI
·         Insider, having traded in listed or proposed to be listed securities, when in possession of UPSI may prove innocence by demonstrating following circumstances.
o    Off-market inter-se transfer between promoters who were in possession of UPSI and both parties made a conscious and informed trade decision.
o    Individuals in possession of UPSI were different from individuals taking trading decisions and such individuals were not in possession of UPSI when they took decision to trade and appropriate arrangements were in place to ensure no communication amongst them and such arrangements were not breached.
o    Trades were pursuant to trading plan in accordance with Regulation 5.
·         In case of connected persons the onus of establishing, that they were not in possession of UPSI shall be on such connected persons and in other case, the same shall be on Board.
·         No insider was allowed to deal in listed securities when in possession of any UPSI, either on his own behalf or on behalf of any other person.
·         if the decision to enter into transaction or agreement was taken by a person   other than a an officer or employee (who possesses UPSI) and such Company has put in place systems and procedures which demarcate the activities of the Company in a way that person entering into transaction shall have no access to UPSI and Company has arrangements to ensure no communication of information from such officer or employee (who possesses UPSI) to such person, this will be a defence in case of a proceeding against the Company for Regulation 3A.
·         An effective barrier to trading when in possession of UPSI should be maintained as a charging principle.
·         This should be the general rule backed by the principle that no insider should gain undue benefit by trading with the benefit of possessing UPSI which the rest of the market does not have and therefore, gain an advantage over the market.
·         The exceptions to the rule are set out in the form of defences that are available
Comments
·         In case of insider the onus of proving that the insider traded when in possession of UPSI is on the person leveling the charge.
·         In case of connected person the onus of establishing, that they were not in possession of UPSI shall be on such connected persons.
Trading Plan
(Regulation 5)
·         Insider shall be entitled to formulate a Trading Plan (TP) and present it to compliance officer for approval and public disclosure pursuant to which trade may be carried out in accordance with such plan.
o    Compliance officer to review the TP for any potential for violation and take such express undertakings as may be necessary (that he is not in possession of UPSI and if available, will ensure that the same becomes generally available) to enable such assessment and approve and monitor implementation of plan.
o    Such TP once approved shall be irrevocable and insider shall mandatorily have to implement the plan, without any deviation.
o    Implementation not to be commenced if any UPSI in possession of insider at the time of formulation of plan has not become generally available. Compliance officer to confirm that implementation ought to be deferred until UPSI becomes generally available.
·         Such TP shall not entail commencement of trading on behalf of insider earlier than 6 months from public disclosure of plan.
o    This is a statutory cooling off period and would not grant immunity from action if the insider were in possession of the same UPSI both at the time of formulation of plan and implementation of the same.
·         Such TP shall not require commencement of trading for the period between 20th trading day prior to last day of any financial period for which results are required to be announced by the issuer of the securities and 2nd trading day after the disclosure of such financial results.
o    To ensure that TP does not entail trading for reasonable period around declaration of UPSI.
·         Such TP shall necessitate trading for a period of atleast 12 months
·         Such TP shall not entail overlap of any period for which another TP is already in existence.
·         Such TP shall set out value of trades to be effected or number of securities to be traded along with the nature of the trade (acquisition or disposal) and intervals at, or specific dates on which such trade shall be effected.
·         Such TP shall not lead to trading securities for market abuse
·         Compliance officer, upon approval, to notify the TP to stock exchanges where securities are listed.
No such provision.
·         Insiders who are liable to possess UPSI round the year are permitted to formulate trading plans with appropriate safeguards. The Compliance officer plays an important role in approving and monitoring the same.
·         TP would permit an insider to formulate the plan in advance to effect trades at a subsequent date
·         They may be in possession of new UPSI but the UPSI that would have been in his possession when formulating the plan would have become generally available
·         TP would not provide absolute immunity from investigation
·         it is time to test the concept in India to enable the framework of compliant trading
Chapter III
Disclosure of trading by Insiders
Partly covered in Chapter IV under Regulation 13
General provisions
(Regulation 6)
·         Public disclosure to be in specified form
·         Trading disclosure made by any person shall include those made by such person’s immediate relatives, and by any other person from whom such person takes trading decision.
·         Disclosure to include trading in derivatives of securities and the traded value of the derivatives shall also be taken into account.
·         Disclosures made are to be maintained by the Company, for a minimum period of 5 years.
·         Maintain record of such reporting made by the directors/ officers/ designated employees/ partners by the Compliance officer for a minimum period of 3 years.
Time period increased for preserving the disclosures.
Disclosures by certain persons
( Regulation 7)
·         Initial Disclosure:
o    By every promoter, KMP and director of every company whose securities are listed – within 30 days of these Regulations taking effect.
o    By every person on appointment as KMP, director or becoming promoter shall disclose holding as on that date – within 7 days of such appointment or becoming a promoter.
·         Initial Disclosure:
o    By any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company in Form A, the number of shares or voting rights held by such person, on becoming such holder, within 2 working days of :—
(a) the receipt of intimation of allotment of shares; or
(b) the acquisition of shares or voting rights, as the case may be.
o    By any person who is a director or officer of a listed company shall disclose to the company in Form B the number of shares or voting rights held and positions taken in derivatives by such person and his dependents (as defined by the company), within two working days of becoming a director or officer of the company.
o    By any person who is a promoter or part of promoter group of a listed company shall disclose to the company in Form B the number of shares or voting rights held by such person, within two working days of becoming such promoter or person belonging to promoter group
·         The Committee has consciously stipulated value thresholds for external disclosures. While there can always be a debate about what the value of such thresholds should be, it was felt necessary to leave flexibility to SEBI to specify any value other than what is being stipulated
·         What is of greater relevance is the scale and size of the trading by insiders particularly those who are expected to have access to UPSI. Even the size of the company is not relevant in this regard.
.
·         Continual Disclosure:
o    By every promoter, employee and director of every company shall disclose to the Company such securities acquired or disposed of within two trading days of such transaction if:
–          Value of securities traded ( in one transaction or a series) over a calendar quarter aggregates to a traded value of 10 lakh rupees or such other specified value
 
o    Every Company shall notify such particulars to the stock exchange within 2 trading days of receipt of the disclosure or from becoming aware of such information.
o    Disclosure to be made when transactions effected after prior disclosure cross the threshold.
·         Continual Disclosure:
o    By any person who holds more than 5% shares for voting rights in any listed company shall disclose to the company in Form C the number of shares or voting rights held and change in
shareholding or voting rights, even if such change results in shareholding falling below 5%:
– if there has been change in such holdings from the last disclosure made and such change exceeds 2% of total shareholding or voting rights in the Company.
o    By any person who is a director or officer of a listed company, shall disclose to the company and the stock exchange where the securities are listed in Form D, the total number of shares or voting rights held and change in shareholding or voting rights if there has been a change in such holdings of such person and his dependents (as defined by the company) from the last disclosure:
–     If the the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower
o    By any person who is a promoter or part of promoter group of a listed company, in Form D, the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings of such person from the last disclosure
–     If the the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower
o    The disclosure shall be made shall be made within two working days of :
(a) the receipts of intimation of allotment of shares, or
(b) the acquisition or sale of shares or voting rights, as the case may be.
o    Every listed company, within two working days of receipt, shall disclose to all stock exchanges on which the company is listed in the respective formats specified in Schedule III.
·         The majority view set out governing disclosures by employees, essentially entail imposing obligations on employees of listed companies. The failure on their part to report to their employers would be a violation of law by them and not by their employers
·         Increasing awareness and educating employees to enable them to comply would only be a welcome measure and would further the regulatory objective of improving hygiene in the securities market
·         The Committee after having consciously reviewed such thresholds from the standpoint of materiality and relevance rationalized the trades disclosure threshold at a value of Rs. 10,00,000 or more in a calendar quarter
·         It is critical to ensure that employees, regardless of their designation should report to their employer the trades they execute in securities of the employer. Considering there is no scope for penalty on a company on the ground of a violation by the employees, the Committee believes that this fundamental reform measure should indeed be recommended
Comments
Apart from the change in thresholds for disclosure, there has also been an onus bestowed upon the Company to report to the Stock exchange within 2 days of becoming aware of such information.
Disclosure by other connected persons
(Regulation7(3))
·         Any company with its securities listed may require any connected person or class of connected persons to make disclosures of holding and trading in securities in such form and at such frequency as deemed fit by the Company.
 
Power given to the Company. Needs to be put in policy.
 
·
 
Chapter IV
CODES OF FAIR DISCLOSURE AND CONDUCT
POLICY ON DISCLOSURES AND INTERNAL PROCEDURE FOR PREVENTION OF INSIDER TRADING
Code of Fair Disclosure.
( Regulation 8)
·         Board of every company, whose securities are listed, shall formulate Code of Practices and Procedures for Fair Disclosure of UPSI for adhering to each of the principles set out in Schedule A.
·         Every such code and any amendment shall be promptly intimated to the stock exchange.
Following were required to frame a Code of Internal Procedures and Conduct as near thereto the Model Code specified in Schedule I of these Regulations and abide by the Code of Corporate Disclosure Practices as specified in Schedule II.
All listed companies and organisations associated with securities markets including :
(a) the intermediaries as mentioned in section 12 of the Act, asset management company and trustees of mutual funds ;
(b) the self-regulatory organisations recognised or authorised by the Board;
(c) the recognised stock exchanges and clearing house or corporations;
(d) the public financial institutions as defined in section 4A of the Companies Act, 1956; and
(e) the professional firms such as auditors, accountancy firms, law firms, analysts, consultants, etc., assisting or advising listed companies,
·         The Committee feels that the market looks primarily to the listing agreement in determining the obligations on disclosures.
·         However, the PIT Regulations, 1992 indeed has a schedule on disclosures to be followed.
·         It was felt that it is important to strengthen it and provide clear-cut principles on how a listed company should follow best practices relating to fair disclosures about emergence of any UPSI that warrants public dissemination.
Code of Conduct
( Regulation 9)
·         Board of every listed company and market intermediary &
·         Every other person who is required to handle UPSI in the course of business operations
shall formulate a Code of Conduct to regulate, monitor and report trading by its employees and connected persons adopting minimum standards specified in Schedule B.
·         Above mentioned entities required to formulate a code of conduct shall also identify and designate a compliance officer to administer the code of conduct and other requirements.
·         The Committee has set out mandatory minimum standards that such codes of conduct would need to have, leaving it to the entities in question to formulate the actual code of conduct that they would adopt.
·         The minimum standards stipulated in Schedule B entail a serious role for the compliance officer who would need to police, monitor and regulate trading by employees and connected persons
Comparison of Code for Disclosure
Code of Practices and Procedures for Fair Disclosure (COPP)
Code of Corporate Disclosure Practices
Prompt disclosure
·         Prompt disclosure of UPSI that would impact price discovery
·         Uniform and universal dissemination of UPSI to avoid selective disclosure
·         Price sensitive information shall be given by listed companies to stock exchanges an disseminated on a continuous and immediate basis.
·         Listed companies may also consider ways of supplementing information released.
Overseeing and co-ordinating disclosure
·         Designation of a senior officer as a chief investor relations officer to deal with dissemination of UPSI
·         Designating senior official ( like compliance officer) to oversee and co-ordinate disclosure to stock exchanges, analysts, shareholders and media and educating staff on disclosure policies and procedure
·         Prompt dissemination of unpublished price sensitive information that gets disclosed selectively, inadvertently or otherwise to make such information generally available.
·         Information disclosure/dissemination may normally be approved in advance by the official designated for the purpose.
·         If information is accidentally disclosed without prior approval, the person responsible may inform the designated officer immediately, even if the information is not considered price sensitive.
Responding to Market rumours
·         Appropriate and fair response to queries on news reports and requests for verification of market rumours by regulatory authorities
·         Listed company to have laid down procedures for responding to any queries or requests for verification of market rumours by exchanges.
·         The official designated for corporate disclosure shall be responsible for deciding whether a public announcement is necessary for verifying or denying rumours and then making the disclosure.
Disclosure of UPSI to analysts etc
·         Ensuring that information shared with analysts and research personnel is not UPSI
·         Developing best practices to make transcripts or records of proceedings of meetings with analysts and other investor relations conferences on the official website to ensure official confirmation.
·         Handling of all UPSI on a need-to-know basis
·         Only public information to be provided
·         Recording of discussion
·         Careful handling of unanticipated questions
·         Simultaneous release of press information
·         Disclosure/ dissemination of information through various media, prompt disclosure to stock exchange.
·         Company websites may provide a means of giving investors a direct access to analyst briefing material, significant background information and questions and answers.
·         Dissemination of information by stock exchanges
Comparison of Code of Conduct
Code of Conduct ( COC)
Code of Internal Procedures and Conduct
 
·         Minimum standards for Code of Conduct to Regulate, Monitor and report trading by Insiders
Model Code Of Conduct For Prevention of Insider Trading
·         Part A – For Listed Companies
·         Part B –For other entities
The intermediaries such as Credit rating agencies, AMC, Broking companies whose securities are listed on stock exchange shall comply with both Part A & B.
Reporting requirements
·         The compliance officer shall report to the board of directors and in particular, shall provide reports to the Chairman of the Audit Committee, if any, or to the Chairman of the Board at such frequency as may be stipulated by the Board.
·         For Listed Companies:
–          The Compliance Officer was required to place before the MD/CEO or a committee specified by the company, on a monthly basis all the details of the dealing in the securities by employees/director/officer of the company and the accompanying documents that such persons had executed under the pre-dealing procedure as envisaged in the Code.
·         For Other entities:
–          The Compliance Officer was required to place before the CEO/ Partner or a committee notified by the organization/ firm, on a monthly basis all the details of the dealing in the securities by designated employees/directors/partners of the organisation / firm and the accompanying documents that such persons had executed under the pre-dealing procedure as envisaged in the Code.
Reporting period to be decided by Board
Chinese Walls
·         All information shall be handled within the organisation on a need-to-know basis and no UPSI shall be communicated to any person except in furtherance of the insider’s legitimate purposes, performance of duties or discharge of his legal obligations.
·         CoC to contain norms for Chinese Walls procedures and for permitting any designated person to ‘cross the wall’
·         For Listed entities – no such provision.
·         For other entities – the organisation/firm shall adopt a “Chinese Wall” policy which separates those areas of the organisation/firm which routinely have access to confidential information, considered “inside areas” from those areas which deal with sale/marketing/investment advise or other departments providing support services, considered “public areas”. Employees in the inside area shall not communicate PSI to anyone in public area.
Listed companies will now be required to adopt the same.
Internal code of conduct governing dealing in securities
·         Employees and connected persons designated on the basis of their functional role (“designated persons”) in the organisation shall be governed by an internal code of conduct governing dealing in securities.
·         The Board shall in consultation with the compliance officer specify the designated persons to be covered by such code on the basis of their role and function in the organisation.
·         Due regard shall be had to the access that such role and function would provide to UPSI in addition to seniority and professional designation.
.
 
 
Notional Trading Window
·         a notional trading window shall be used as an instrument of monitoring trading by the designated persons.
·         The trading window shall be closed when the compliance officer determines that a designated person or class of designated persons can reasonably be expected to have possession of UPSI.
·         Designated persons and their immediate relatives shall not trade in securities when the trading window is closed.
·         The timing for re-opening of the trading window shall be determined by the compliance officer taking into account various factors including the UPSI in question becoming generally available and being capable of assimilation by the market, which in any event shall not be earlier than forty-eight hours after the information becomes generally available.
·         Applicable to any person having contractual or fiduciary relation with the company, such as auditors, accountancy firms, law firms, analysts, consultants etc., assisting or advising the company
·         For Listed entities –
o    Closure of trading window – illustrative list was provided.
o    Trading window was to be opened 24 hours after information made public
o    In case of ESOPs, exercise of options may be allowed when the trading window was closed. However, sale of shares allotted was not permitted.
 
Pre-clearance
·         When the trading window is open, trading by designated persons shall be subject to preclearance
by the compliance officer, if the value of the proposed trades is above such thresholds as the Board may stipulate. No designated person shall apply for pre-clearance of any proposed trade if such designated person is in possession of UPSI even if the trading window is not closed.
·         Prior to approving any trades, the compliance officer shall be entitled to seek declarations to the effect that the applicant for pre-clearance is not in possession of any unpublished price sensitive information
·         The COC shall specify any reasonable timeframe, which in any event shall not be more than seven trading days, within which trades that have been pre-cleared have to be executed by the designated person, failing which fresh pre-clearance would be needed for the trades to be executed.
·
·         For Listed entities –
o    Pre-clearance of trades – Application to be made to compliance officer, undertaking to be executed.
o    Other restrictions
– Directors/ officers/ designated employees and their dependants to execute trade within 1 week after approval of pre clearance, else transaction to be cleared again.
 
·         For Other entities –
o    Pre-clearance of trades – Application to be made to compliance officer, undertaking to be executed.
o    Other restrictions
– Directors/ designated employees/ partners to execute trade within 1 week after approval of pre clearance, else transaction to be cleared again.
-Analysts, if employed shall disclose shareholding interest in such company to the Compliance officer
Restriction for contra trade
·         CoC shall specify the period, which in any event shall not be less than six months, within which a designated person who is permitted to trade shall not execute a contra trade.
·         The Compliance The compliance officer may be empowered to grant relaxation from strict application of such restriction for reasons to be recorded in writing provided that such relaxation does not violate these Regulations
·         For Listed entities –
o    All directors/ officers/ designated employees who buy or sell any number of shares of the company shall not enter into an opposite transaction during the next 6 months following the prior transaction
o    In case of subscription to IPOs hold investments for 30 days
o    the holding period may be waived by the Compliance Officer after recording in writing his/her reasons in this regard
·         For Other entities –
o    All directors/ designated employees/ partners to hold investments for minimum 30 days.
o    the holding period may be waived by the Compliance Officer after recording in writing his/her reasons in this regard
Restricted list
·         The compliance officer shall confidentially maintain a list of such securities as a “restricted list” which shall be used as the basis for approving or rejecting applications for preclearance of trades
·         For Other entities –
o    Restricted/ Grey List maintained by Compliance Officer – restrict trading in certain securities. Listed company’s security may be put on grey list if organisation/ firm is handling any assignment for the listed company
Formats
·         CoC shall stipulate such formats as the Board deems necessary for making applications for pre-clearance, reporting of trades executed, reporting of decisions not to trade after securing pre-clearance, recording of reasons for such decisions and for reporting level of holdings in securities at such intervals as may be determined as being necessary to monitor compliance with these regulations.
·         No such specific power was provided to Board.
Contravention
·         the CoC shall stipulate the sanctions and disciplinary actions, including wage freeze, suspension etc., that may be imposed, by the persons required to formulate a CoC under sub-regulation (1) and (2) of regulation 9, for the contravention of the CoC
·         The action by the organisation/firm shall not preclude SEBI from taking any action in case of violation of SEBI (Prohibition of Insider Trading) Regulations, 1992
·         For Listed Entities
o    Employees/officers/directors of the company who violate the code of conduct may be penalized and shall also be subject to disciplinary action by the company, which may include wage freeze, suspension, ineligible for future participation in employee stock option plans, etc.
·         For Other Entities
o    Employees/partners/directors of the organisation/firm who violate the code of conduct may be penalized and be subject to disciplinary action by the company, which may include wage freeze, suspension, etc.
Informing to SEBI promptly
·         The CoC shall specify that in case it is observed by the persons required to formulate a CoC under sub-regulation (1) and (2) of regulation 9, that there has been a violation of these regulations, they shall inform SEBI promptly
·         For Listed Entities
o    In case it is observed by the company/Compliance Officer
·         For other entities
o    In case it is observed by the organisation/firm/compliance officer.

 [1] https://taxguru.in/sebi/sebi-prohibition-insider-trading-regulations-2015.html

[2] http://www.sebi.gov.in/cms/sebi_data/commondocs/ir1992_p.pdf

[3] http://www.sebi.gov.in/cms/sebi_data/attachdocs/1386758945803.pdf

[4] “promoter” includes:

(i) the person or persons who are in control of the issuer;

(ii) the person or persons who are instrumental in the formulation of a plan or programme pursuant to which specified securities are offered to public;

(iii) the person or persons named in the offer document as promoters:

Provided that a director or officer of the issuer or a person, if acting as such merely in his professional capacity, shall not be deemed as a promoter:

Provided further that a financial institution, scheduled bank, foreign portfolio investor other than Category III foreign portfolio investor and mutual fund shall not be deemed to be a promoter merely by virtue of the fact that ten per cent. or more of the equity share capital of the issuer is held by such person;

Provided further that such financial institution, scheduled bank and foreign institutional investor shall be treated as promoter for the subsidiaries or companies promoted by them or for the mutual fund sponsored by them.

[The above post is contributed by CS Vinita Nair at Vinod Kothari & Co.  She can be contacted at vinita@vinodkothari.com]

Read Other Articles from Vinod Kothari & Company

More Under SEBI

Posted Under

Category : SEBI (2781)
Type : Articles (15304)

0 responses to “SEBI gives a New Year gift – issues PIT Regulations, 2015”

  1. prem bafana says:

    Dear Vinita ji

    what is the dead line for adoption of fair code under these regulations

    thx

Leave a Reply

Your email address will not be published. Required fields are marked *