SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION
Mumbai, the 24th November, 2022
SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION OF INSIDER TRADING) (AMENDMENT) REGULATIONS, 2022
No. SEBI/LAD-NRO/GN/2022/108.—In exercise of the powers conferred by section 30 read with clause (g) of sub-section (2) of section 11 and clauses (d) and (e) of section 12A of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to further amend the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, namely:—
1. These Regulations may be called the Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations, 2022.
2. They shall come into force on such date as the Board may by notification in the Official Gazette, appoint.
3. In the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015,-
I. in regulation 2,
i. in sub-regulation (1),
a. in clause (i), the words “except units of a mutual fund” shall be omitted.
b. in clause (l), after the word and symbol “subscribing,” and before the word “buying” the words and symbol “redeeming, switching,” shall be inserted and after the word and symbol “subscribe,” and before the word “buy”, the words and symbol “redeem, switch,” shall be inserted.
II. in regulation 7A, in clause (d),
i. in sub-clause (iv), the word “and” shall be omitted.
ii. After sub-clause (iv) and before sub-clause (v), the following sub-clause shall be inserted, namely,-
“iv(a) regulations 5A to 5G of these regulations; and”
III. after Chapter II and before Chapter III, the following Chapter shall be inserted, namely,-
“CHAPTER – II A
RESTRICTIONS ON COMMUNICATION IN RELATION TO AND TRADING BY INSIDERS IN THE UNITS OF MUTUAL FUNDS.
Applicability
5A. (1) The provisions of this Chapter shall apply only in relation to the units of a mutual fund.
(2) All the provisions of Chapter IIIA and V shall also apply in relation to the units of a mutual fund.
Definitions.
5B.(1) For the purpose of this Chapter,
(a) “associate” shall have the same meaning assigned to it under the Securities and Exchange Board of India (Mutual funds) Regulations, 1996;
(b) “connected person” shall mean:
(i) any person who is or has during the two months prior to the concerned act been associated with the mutual fund, asset management company and trustees, 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 employee of the asset management company and trustee or holds any position including a professional or business relationship with the mutual fund or asset management company or the trustees, whether temporary or permanent, that allows such a person, direct or indirect access to unpublished price sensitive information or is reasonably expected to allow such access;
(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) Sponsor, holding company or associate company or subsidiary company of the Sponsor or Asset management company and Trustees; or
(c) Board of Directors and key management personnel of sponsor of the mutual fund;or
(d) Directors or employees of registrar and share transfer agents, custodians or valuation agencies of the mutual fund who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations; or
(e) an official or an employee of fund accountant providing services to a mutual fund who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations; or
(f) an official or an employee of a self-regulatory organization recognised or authorized by the Board; or
(g) an official of a stock exchange for dissemination of information; or
(h) Directors or employees of auditor, legal advisor or consultants of the mutual fund or asset management company who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operation; or
(i) an intermediary as specified in section 12 of the Act or an employee or director thereof who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations; or
(j) a banker of the mutual fund or asset management company; or
(k) a concern, firm, trust, HUF, company or association of persons wherein a director of an asset management company and Trustees or his immediate relative or banker of the company, has more than ten per cent of the holding or interest;
(c) “generally available information” means information that is made available to the unitholders or made accessible to the public on a non-discriminatory basis;
NOTE: Generally available information is intended to be defined to crystallize and appreciate its meaning. Information published on the website of a stock exchange would ordinarily be considered generally available.
Explanation : The asset management companies/trustees shall immediately disseminate all material information on the platform of the stock exchange or in any other manner as may be specified by the Board, whenever the same needs to be communicated to the unitholders or a public notice needs to be made;
(d) “insider” means any person who is:
i. a connected person; or
ii.in possession of or having access to unpublished price sensitive information pertaining to a scheme;
(e) “systematic transactions” in the units of mutual fund are those transactions which are automatically triggered for execution on a periodic basis as instructed by the investor including Systematic Investment Plans, Systematic Transfer Plans or Systematic Withdrawal Plans;
(f) “unpublished price sensitive information” shall mean any information, pertaining to a scheme of a mutual fund which is not yet generally available and which upon becoming generally available, is likely to materially impact the net asset value or materially affect the interest of unit holders and shall include the instances where there is a likelihood of:
i. a change in the accounting policy;
ii. a material change in the valuation of any asset or class of assets;
iii. restrictions on redemptions, winding up of scheme(s);
iv. creation of segregated portfolio;
v. the triggering of the swing pricing framework and the applicability of the swing factor;
vi. material change in the liquidity position of the concerned mutual fund scheme(s);
vii. default in the underlying securities which is material to the concerned mutual fund scheme(s).
Note: All other definitions in Chapter-I shall mutatis mutandis be applicable to transactions in the units of mutual funds.
Communication or procurement of unpublished price sensitive information and maintenance of a structured digital data base.
5C. (1) No insider shall communicate, provide, or allow access to any unpublished price sensitive information to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.
NOTE: This provision is intended to cast an obligation on all insiders who are essentially persons in possession of unpublished price sensitive information to handle such information with care and to deal with the information with them when transacting their business strictly on a need-to-know basis. It is also intended to lead to organisations developing practices based on need-to-know principles for treatment of information in their possession.
(2) No person shall procure from or cause the communication by any insider of unpublished price sensitive information, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.
NOTE: This provision is intended to impose a prohibition on unlawfully procuring possession of unpublished price sensitive information. Inducement and procurement of unpublished price sensitive information not in furtherance of one‟s legitimate duties and discharge of obligations would be illegal under this provision.
(3) The board of directors of an asset management company with the approval of the Trustees shall make a policy for determination of “legitimate purposes”.
Explanation – For the purpose of illustration, the term “legitimate purpose” shall include sharing of unpublished price sensitive information in the ordinary course of business by an insider with Trustees, Registrars and Share Transfer Agents, Custodians, Valuation Agencies, Fund Accountants, Association of Mutual funds of India, Credit Rating Agencies, legal advisors, auditors or other advisors or consultants, except where such sharing has been carried out to evade or circumvent the prohibitions of these regulations.
(1) Any person in receipt of unpublished price sensitive information pursuant to a “legitimate purpose” shall be considered an “insider” for purposes of this chapter and due notice shall be given to such persons to maintain confidentiality of such unpublished price sensitive information in compliance with these regulations.
(2) For the purpose of sub-regulation (4), the board of directors of an asset management company shall require the parties to execute agreements to contract confidentiality and non-disclosure obligations on the part of such parties and such parties shall keep information so received confidential, except for the purpose specified herein and shall not otherwise deal in the units of a mutual fund when in possession of unpublished price sensitive information.
(3) The board of directors or head(s) of the organisation of every person required to handle unpublished price sensitive information shall ensure that a structured digital database is maintained containing the nature of unpublished price sensitive information and the names of such persons who have shared the information and also the names of such persons with whom information is shared under this regulation along with the Permanent Account Number or any other identifier authorized by law where Permanent Account Number is not available. Such database shall not be outsourced and shall be maintained internally with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database.
(7) The board of directors or head(s) of the organisation of every person required to handle unpublished price sensitive information shall ensure that the structured digital database is preserved for a period of not less than eight years after completion of the relevant transactions and in the event of receipt of any information from the Board regarding any investigation or enforcement proceedings, the relevant information in the structured digital database shall be preserved till the completion of such proceedings.
Trading when in possession of unpublished price sensitive information.
5D. (1) No insider shall trade in the units of a scheme of a mutual fund, when in possession of unpublished price sensitive information, which may have a material impact on the net asset value of a scheme or may have a material impact on the interest of the unit holders of the scheme:
Explanation –The dealings of a person in the units of a mutual fund when in possession of unpublished price sensitive information, shall be presumed to have been motivated by the knowledge and awareness of such information in his possession:
Provided that the insider may prove his innocence by demonstrating the circumstances including the following: –
(i) the transaction is an off-market inter-se transfer between insiders who were in possession of the same unpublished price sensitive information and both parties had made a conscious and informed trade decision:
Provided that such off-market trades shall be reported by the insiders to the asset management company within two working days. Every asset management company shall notify the particulars of such trades to the stock exchange or in any other manner as may be specified by the Board within two trading days from receipt of the disclosure or from becoming aware of such information;
(ii) such transaction in question was carried out pursuant to a statutory or regulatory obligation including subscription or investment in mutual fund units pursuant to the mandatory requirement specified by the Board for “Alignment of interest of Designated Employees of asset management companies with the Unit holders of the mutual fund schemes”;
(iii) such transaction in question is triggered by systematic transactions, where such systematic transactions are registered at least two months prior to such transaction;
(iv) such transaction in question is triggered by irrevocable trading plans, where such plan has been approved by the Compliance Officer and disclosed on the Stock Exchange platform or in any other manner as may be specified by the Board, at least sixty days before the commencement of trades:
Provided that the trading period for each plan shall be at least six months with no overlapping of different trading plans:
Provided further that for the trading as per the approved plan, no requirements/ norms related to pre-clearance of trading or closure period or contra trade shall be applicable.
(2) In the case of connected persons, the onus of establishing that they were not in possession of unpublished price sensitive information, shall be on such connected persons and in other cases, the onus would be on the Board.
Disclosures by certain persons
5E. (1) An asset management company shall, on such date as may be specified by the Board and on a quarterly basis thereafter, disclose the details of holdings in the units of its mutual fund schemes, on an aggregated basis, held by the Designated Persons of asset management company, trustees and their immediate relatives on the platform of Stock Exchanges or in any other manner as may be specified by the Board.
(2) Details of all the transactions in the units of its own mutual funds, above such thresholds as may be specified by the Board, executed by the Designated Persons of asset management company, trustees and their immediate relatives shall be reported by the concerned person to the Compliance Officer of asset management company within two business days from the date of transaction:
Provided that with respect to systematic transactions through any mutual fund scheme,
Designated Persons may report the same only at the time of making the first installment of the transaction along with the period of such transaction and on modifications thereof, if any:
Provided further that no reporting is required if such transaction was pursuant to
a. subscription/investment in the mutual fund units pursuant to mandatory requirement specified by Board for “Alignment of interest of Key Employees (“Designated Employees‟) of Asset Management Companies with the Unitholders of the mutual fund Schemes” or otherwise, where separate records are maintained by the Asset management company in this regard. Such transactions may be governed by Circulars/guidelines issued by the Board from time to time;
b. Any trading in overnight schemes, Index funds and Exchange Traded Funds.
(3) Transactions mentioned in sub-regulation (2), shall be disclosed by the asset management company on Stock Exchange or any other manner as may be specified by the Board within two business days of receipt of the same.
(4) The above disclosures shall be made in such form and such manner as may be specified by the Board from time to time.
Code of Conduct
5F. (1) The board of directors of every asset management company shall ensure that the chief executive officer or managing director shall formulate a code of conduct with their approval to regulate, monitor and report dealings in mutual fund units by the Designated Persons and immediate relatives of the Designated Persons towards achieving compliance with these regulations and , adopting the minimum standards set out in Schedule B1 to these regulations, without diluting the provisions of these regulations in any manner.
(2) The board of directors or head(s) of the organisation, of every other person who is required to handle unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations shall formulate a code of conduct to regulate, monitor and report trading by their Designated Persons and immediate relative of Designated Persons towards achieving compliance with these regulations, adopting the minimum standards set out in Schedule C to these regulations, without diluting the provisions of these regulations in any manner.
Explanation – Professional firms such as auditors, accountancy firms, law firms, analysts, consultants, banks, valuation agencies, fund accountants, assisting or advising Asset Management Companies, Trustees, Registrars and share transfer agents, Custodians and Credit Rating Agencies shall be collectively referred to as “fiduciaries” for the purpose of Schedule C of these regulations.
(3) Every asset management company, intermediary and other persons formulating a code of conduct shall identify and designate a compliance officer to administer the code of conduct and other requirements under these regulations.
Designated Person
5G. (1)The board of directors of the asset management company and trustees shall in consultation with the compliance officer specify the Designated Persons to be covered by the code of conduct on the basis of their role and function in the organisation and the access that such role and function would provide to unpublished price sensitive information in addition to seniority and professional designation and shall include:
i. Head of the asset management company (designated as Chief Executive Officer/Managing Director/President or by any other name),
ii. Directors of the asset management company or the trustee company,
iii. Chief Investment Officer, Chief Risk Officer, Chief Operation Officer, Chief Information Security Officer, Fund Managers, Dealers, Research Analysts, all employees in the Fund Operations Department, Compliance Officer and Heads of all divisions and/or departments or any other employee as designated by the asset management company and/or trustees.
Explanation :Non-Executive Directors of the asset management company/trustee company or trustees who are in possession of / have access to any “unpublished price sensitive information” , shall also be deemed to be Designated Persons.
(2) Every other Intermediary and other persons shall in consultation with the compliance officer specify the Designated Persons to be covered by the code of conduct on the basis of their role and function in the organisation and the access that such role and function would provide to unpublished price sensitive information in addition to seniority and professional designation.
Institutional Mechanism for Prevention of Insider trading.
5H. (1) The Chief Executive Officer / Managing Director of an asset management company with the approval of the trustee or such other analogous person of an intermediary or fiduciary, shall put in place adequate and effective system of internal controls to ensure compliance with the requirements given in these regulations to prevent insider trading. These internal controls shall include the following:
(a). All employees who have access to unpublished price sensitive information are identified as Designated Persons;
(b). All the unpublished price sensitive information shall be identified and its confidentiality shall be maintained as per the requirements of these regulations;
(c). Adequate restrictions shall be placed on communication or procurement of unpublished price sensitive information as required by these regulations;
(d). Lists of all employees and other persons with whom unpublished price sensitive information is shared shall be maintained and confidentiality agreements shall be signed or notice shall be served to all such employees and persons;
(e). Periodic process review to evaluate effectiveness of such internal controls;
(f). Compliance of all other relevant requirements specified under these regulations.
(2) The board of directors of an asset management company and the board of directors or head(s) of the organisation of intermediaries and fiduciaries, shall also ensure that the Chief Executive Officer or the Managing Director or such other analogous person complies with these regulations.
(3) The Audit Committee of an asset management company or such other analogous body of an intermediary or fiduciary shall review compliance with the provisions of these regulations at least once in a financial year and shall verify that the systems for internal control are adequate and are operating effectively.
(4) Every asset management company shall with the approval of the trustees formulate written policies and procedures for inquiry in case of leak of unpublished price sensitive information or suspected leak of unpublished price sensitive information and accordingly initiate appropriate inquiries on such leak of unpublished price sensitive information or suspected leak of unpublished price sensitive information and promptly inform the Board promptly of such leaks, inquiries and result of such inquiries.
(5) An asset management company shall with the approval of the trustees have a whistle-blower policy that is brought to the notice of their employees to enable them to report instances of leak of such unpublished price sensitive information .
(6) In case an inquiry has been initiated by an asset management company/ trustees in case of leak of unpublished price sensitive information or suspected leak of unpublished price sensitive information, the relevant intermediaries and fiduciaries shall co-operate with the asset management company/ trustees in connection with such inquiry conducted by the asset management company/ trustees.”
IV. After Schedule B, the following Schedule shall be inserted namely,-
“SCHEDULE B1
(See Regulation 5F of Chapter – IIA)
Minimum Standards of Code of Conduct for Mutual Funds to regulate, monitor and report trading by the Designated Persons in the units of own mutual fund schemes
1. The compliance officer shall report to the board of directors of asset management company and provide reports to the Chairman of the Audit Committee of the asset management company and to the trustees, at such frequency as may be stipulated by the board of directors, but in any case not less than once in a year.
2. The information shall be handled within the organisation on a need-to-know basis and no unpublished price sensitive information shall be communicated to any person except in furtherance of legitimate purpose, performance of duties or discharge of legal obligations. The code of conduct shall contain norms for appropriate Chinese Walls procedures and processes for permitting any designated person to “cross the wall”.
3. Designated Persons and immediate relatives of designated persons in the organisation shall be governed by an internal code of conduct governing dealings in units of the mutual fund.
4. (1)Designated persons may deal in the units of the mutual fund subject to compliance with these regulations. The compliance officer of the asset management company shall determine the closure period during which a Designated Person or class of Designated Persons can reasonably be expected to have possession of unpublished price sensitive information. Such closure period shall be imposed in relation to such schemes to which such unpublished price sensitive information relates. During such time, any requests to transact in the units of the mutual funds by the Designated Persons and/or their immediate relatives shall not be processed by the asset management company.
(2) The closure period restrictions mentioned in sub-clause (1) shall not apply in respect of transactions specified in clauses (i) to (iii) of the proviso to sub-regulation (1) of regulation 5D and in respect to the pledge of mutual fund units for a bonafide purpose, subject to pre-clearance by the compliance officer and compliance with the other requirements, if any, as may be specified by the Board.
5. The timing for re-opening of the closure period shall be determined by the compliance officer taking into account various factors including the unpublished price sensitive information in question becoming generally available and being capable of assimilation by the market.
6. When the closure period is not applicable, trading in the mutual fund units by Designated Persons and their immediate relatives including at the time of initiation of systematic transactions shall be subject to pre-clearance by the compliance officer, if the value of the proposed trades is above such thresholds (separate thresholds for systematic transactions and lumpsum payments) as the Board of AMCs may stipulate:
Provided that for transactions in units by the Designated Persons pursuant to the mandatory requirement under “Alignment of interest of Key Employees („Designated Employees‟) of asset management companies with the unit holders of the mutual fund schemes‟ or otherwise shall be as specified by the Board in this regard:
Provided further that the requirement of pre-clearance of trades by Designated Persons shall not apply for trading in Overnight Schemes, Index funds and Exchange Traded Funds.
7. Prior to approving any trades, the compliance officer shall be entitled to seek a declaration to the effect that the applicant for pre-clearance is not in possession of any unpublished price sensitive information with due regard to whether any such declaration is reasonably capable of being rendered inaccurate.
8. The code of conduct formulated by the chief executive officer or managing director of the asset management company shall specify any reasonable timeframe, which in any event shall not be more than seven business days, within which trades that have been pre-cleared have to be executed by the Designated Person, failing which fresh pre-clearance shall be required for the trades to be executed.
9. The code of conduct shall also specify the period, which in any event shall not be less than two months, within which a Designated Person who is permitted to trade shall not execute a contra trade. The compliance officer may be empowered to grant relaxation from the strict application of such restriction for reasons to be recorded in writing provided that such relaxation does not violate these regulations or other requirements specified by the Board. In case a contra trade is executed, inadvertently or otherwise, in violation of such a restriction, the profits or loss avoided from such trade shall be liable to be disgorged by the asset management company and credited under intimation to the Board, to the Investor Protection and Education Fund established by the Board under the Act:
Provided that trading restrictions imposed for contra trade shall not be applicable for Overnight Schemes.
10. The code of conduct shall also stipulate such formats as the board of directors deem necessary for making applications for reporting of trades executed and for reporting level of holdings in units of mutual funds at such intervals as may be determined as being necessary to monitor compliance with these regulations.
11. The code of conduct shall stipulate the internal sanctions and disciplinary actions, including wage freeze, suspension, recovery, etc., that may be imposed by the asset management company for the contravention of the code of conduct. Any amount collected under this clause shall be disgorged by the asset management company and credited under intimation to the Board, to the Investor Protection and Education Fund established by the Board under the Act.
12. The code of conduct shall specify that in case it is observed by the asset management company that there has been a violation of these regulations, it shall promptly inform to the stock exchange(s), in such form and such manner as may be specified by the Board from time to time.
13. Designated Persons shall be required to disclose names and Permanent Account Number or any other identifier authorized by law of the following persons to the mutual fund on an annual basis and as and when the information changes:
a) immediate relatives
b) persons with whom such Designated Person(s) shares a material financial relationship
c) 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 from a Designated Person during the immediately preceding twelve months, equivalent to at least 25% of the annual income of such Designated Person but shall exclude relationships in which the payment is based on arm‟s length transactions.
14. Mutual funds shall have a process that would determine how an individual is brought „inside‟ to access sensitive transactions and shall be made aware of the duties and responsibilities attached to the receipt of such Inside Information and the liability that is attached to the misuse or unwarranted use of such information.”
V. In Schedule C,
i. In Clause 8 after the words and symbol “contra trade.”, and before the words “The compliance officer” the following words and symbol shall be inserted, namely,-
“In case of dealing in the units of mutual funds, the code of conduct shall specify the period, which in any event shall not be less than two months, within which a Designated Person who is a connected person of the mutual fund/asset management company/trustees and is permitted to trade in the units of such mutual fund, shall not execute a contra trade.”
ii. After clause 11, the following clause shall be inserted, namely,-
“11A. In case of dealing in the units of mutual funds, the code of conduct shall specify that in case it is observed by the intermediary or fiduciary required to formulate a code of conduct under sub-regulation (2) of regulation 5F, that there has been a violation of these regulations, such intermediary or fiduciary shall promptly inform the same to the stock exchange(s) in such form and such manner as may be specified by the Board from time to time.”
MADHABI PURI BUCH, Chairman
[ADVT.-III/4/Exty./428/2022-23]
Footnote:
1. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 was published in the Gazetteof India on January 15, 2015 vide No. LAD-NRO/GN/2014-15/21/85.
2. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 was subsequently amended on, –
i. December 31, 2018 by the Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations, 2018 vide No. SEBI/LAD-NRO/GN/ 2018/59.
ii. January 21, 2019 by the Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations, 2019 vide No. SEBI/LAD-NRO/GN/ 2019/02.
iii. July 25, 2019 by the Securities and Exchange Board of India (Prohibition of Insider Trading) (Second Amendment) Regulations, 2019 vide No. SEBI/LAD-NRO/GN/ 2019/23.
iv. September 17, 2019 by the Securities and Exchange Board of India (Prohibition of Insider Trading) (Third Amendment) Regulations, 2019 vide No. SEBI/LAD-NRO/GN/ 2019/32.
v. July 17, 2020 by the Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/ 2020/23.
vi. October 29, 2020 by the Securities and Exchange Board of India (Prohibition of Insider Trading) (Second Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/ 2020/38.
vii. April 26, 2021 by the Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/ 2021/17.
viii. August 05,2021 by the Securities and Exchange Board of India (Prohibition of Insider Trading) (Second Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/ 2021/37.
