The regulation was notified on 15.01.2015 and came into effect on the 120th day after being notified i.e 15.05.2015
In general terms Insider trading is defined as, ‘the illegal practice of trading on the stock exchange to one’s own advantage through having access to unpublished price sensitive information.’
Section 195 of Companies Act, 2013 (omitted by Companies (Amendment) Act, 2017) defined the term insider trading and price sensitive information:
“insider trading” means—
i. an act of subscribing, buying, selling, dealing or agreeing to subscribe, buy, sell or deal in any securities by any director or key managerial personnel or any other officer of a company either as principal or agent if such director or key managerial personnel or any other officer of the company is reasonably expected to have access to any non-public price sensitive information in respect of securities of company; or
ii. an act of counselling about procuring or communicating directly or indirectly any non-public price-sensitive information to any person;
“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 the company.
What is unpublished price sensitive information (UPSI)
As per regulation 2(1) (n) of SEBI (Prohibition of insider Trading) Regulation, 2015 UPSI is defined as, “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. Merger, de-merger, acquisition, delisting, disposal and expansion of business and such other transactions;
v. Change in Key Managerial Personnel.”
Therefore, any information apart from the above stated 5 information will also be considered as UPSI, if such information can materially affect the price of the securities.
Further, generally available information means information that is accessible to the public on a non-discriminatory basis.
Who is an Insider?
Regulation 2(1)(g) defines insider as a Person who is:
i. A connected Person; or
ii. In possession or is having unpublished price sensitive information.
It is intended that anyone in possession of or having access to unpublished price sensitive information should be considered an “insider” regardless of how one came in possession of or had access to such information.
The onus of showing that a certain person was in possession of or had access to unpublished price sensitive information at the time of trading would, therefore, be on the person leveling the charge after which the person who has traded when in possession of or having access to unpublished price sensitive information may demonstrate that he was not in such possession or that he has not traded or he could not access or that his trading when in possession of such information was squarely covered by the exonerating circumstances.
Connected Person:
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.
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;
NOTE: It is intended that a connected person is one who has a connection with the company that is expected to put him in possession of unpublished price sensitive information. Immediate relatives and other categories of persons specified above are also presumed to be connected persons but such a presumption is a deeming legal fiction and
Relative means as defined under Companies Act, 2013
Some cases related to Insider Trading
- Whatsapp Leak Case: The information related to its quarterly financial results was being circulated in the WhatsApp group much before the time it came in public. The proximity of the figures being circulated in the WhatsApp group and the actual figures was a clear indication that such information was being leaked by a person who had access to the unpublished price sensitive information relating to the quarterly financial results of the company.
- Insider trading in the scrip of DEEP INDUSTRIES LIMITED: Friends or acquaintances on social media (facebook) were considered as Connected Persons.
- Chintalapati Srinivasa Raju V. SEBI: Non-executive directors are persons who are not involved in the day to- day affairs of the running of the company and are not in charge of and not responsible for the conduct of the business of the company. Being part of the promoter group cannot be stated to be foundational facts from which an inference of reasonably being expected to be in the knowledge of confidential information can be formed.
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