Insider trading is trading in the securities of a company by persons who are in the management of the company or those who are connected to them on the basis of knowledge of an Unpublished Price Sensitive Information (UPSI) which is not available to the general public. Insider trading, based on UPSI, is illegal and unethical. In India, Insider Trading is regulated by SEBI (Prohibition of Insider Trading) Regulations, 2015.

Relevant Definitions:

i) “Insider” means any person who is:

  • A connected person or,
  • In possession of or having access to UPSI

ii) “Unpublished Price Sensitive Information (UPSI)” means:

  • Any information relating to:
    • Company or,
    • Its securities
  • That is not generally available to public,
  • Which upon becoming generally available is likely to materially affect price of the securities and,
  • Shall ordinarily include ( but not restricted ) the following: Financial Results,  Dividends, Change in Capital Structure, Mergers, Demergers, Acquisitions, Delistings, Disposals, and such other transactions & Changes in Key Managerial Personnel

iii)  “Trading” means and includes subscribing, buying, selling, dealing, or agreeing to subscribe, buy, sell, deal in any securities, and “trade” shall be construed accordingly.

CHAPTER II :  RESTRICTIONS ON COMMUNICATION AND TRADING BY INSIDERS

Communication or procurement of unpublished price sensitive information

Regulation 3(1): No insider shall:

  • communicate, provide, or allow access to any unpublished price sensitive information,
  • relating  to a  company  or securities  listed  or  proposed  to  be  listed,
  • to any person including other insiders
  • except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

Regulation 3(2): No person shall procure from or cause the communication:

  • by any insider of unpublished price sensitive  information,
  • relating to a  company  or securities  listed  or  proposed  to  be listed,
  • except  in  furtherance  of  legitimate  purposes,  performance  of duties  or  discharge  of  legal obligations.

Regulation 3(3): Notwithstanding anything contained in this regulation, an UPSI may be communicated, provided, allowed access to or procured, in connection with a transaction that would:

i)   entail  an  obligation  to  make  an  open  offer  under  the  takeover  regulations  and  directors  of  the company  are of  the opinion  that sharing  of such information is in the best interests of the company. ii)   not attract the obligation to make an open offer under the takeover regulations but where  the  board  of  directors  of  the company  are  of  the opinion that sharing  of  such  information is  in the  best  interests  of  the  company  and ,

the  information that  constitute  UPSI is disseminated  to  be  made generally  available  at  least  two  trading  days  prior  to  the  proposed  transaction.

Regulation 3(4): For  purposes  of  sub regulation  (3),  the  board  of  directors  shall  require  the  parties  to execute contract of confidentiality and non disclosure obligations and such parties shall keep information so received confidential, except for the purpose of sub regulation (3), and shall not otherwise trade in securities of the company when in possession of unpublished price sensitive information

Regulation 3(5): The Board  of  directors  shall  ensure  that:

  • a structured  digital  database  is  maintained containing  the  names  of  such  persons  or  entities  as  the  case  may  be  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

Trading when in possession of unpublished price sensitive information

Regulation 4(1): No insider  shall  trade  in  securities  that  are  listed  or  proposed  to  be  listed  on  a stock exchange when in possession of UPSI.

Provided  that  the  insider  may  prove  his  innocence  by  demonstrating  the circumstances including the following:

1. Transaction is an off-market inter-se transfer between insiders in possession of UPSI.

2. Transaction was carried out through the block deal window mechanism

3. Transaction in  question  was  carried  out  pursuant  to  a  statutory  or  regulatory obligation.

4. Transaction in question was undertaken pursuant to the exercise of stock options

5. in respect of which the exercise price was pre-determined in compliance with applicable

6. in the case of non-individual insiders:

  • the individuals who were in possession of such UPSI were different from the individuals taking trading decisions and such decision making individuals were  not  in  possession  of  such  UPSI when they took the decision to trade; and
  • appropriate and adequate  arrangements  were  in  place  to  ensure  that  these regulations are  not  violated  and  no  UPSI was communicated  by  the  individuals possessing  the  information  to  the  individuals taking  trading  decisions  and  there  is  no evidence  of  such  arrangements  having been breached;

7. the trades were pursuant to a trading plan.

Regulation 4(2): In the 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 cases, the onus would be on the Board.

Regulation 4(3): The  Board  may  specify  such  standards  and  requirements, from  time  to  time, as it may deem necessary for the purpose of these regulations.

(Chapter III): Disclosures of Trading By Insiders:

General provisions

Regulation 6(1): Every disclosure under this chapter shall me made in such form as maybe prescribed.

Regulation 6(2):  The disclosures  made by any person under this Chapter shall include those relating to trading by such person’s immediate relatives, and by any other person for whom such person takes trading decisions.

Regulation 6(3): The  disclosures  of  trading  in  securities  shall  also  include  trading  in  derivatives  of securities and the traded value of the derivatives shall be taken into account for purposes of this Chapter.

Regulation 6(4): The  disclosures  made  under  this  Chapter  shall  be  maintained  by  the  company,  for  a minimum period of five years, in such form as may be specified.

Disclosures by certain persons:

Regulation 7(1): Initial Disclosures

By To Transaction Time Limit
a.   Promoter (member of the promoter  group), key managerial personnel and director Company Holding  of  securities  of  the  company Within thirty days of these regulations taking effect.
b.  key  managerial  personnel or,a  director or, a promoter  or  member  of  the  promoter  group Company Holding  of  securities  of  the  company Within  seven  days  of  such  appointment or becoming a promoter

Regulation 7(2): Continual Disclosures

By To Transaction Time Limit
a.       Promoter (or member  of  the  promoter  group or designated person) and director Company Number  of  such securities  acquired  or  disposed  of

(if value  of  the  securities  traded,  whether  in  one  transaction  or  a  series  of  transactions over any calendar quarter, aggregates to a excess of ten lakh rupees or such other value as may be specified.

Within 2 Trading Days from the transaction
b.      Company Stock Exchange Same as above Within 2 trading days of receipt of the disclosure

Regulation 7(3): Disclosures by other connected persons

Any  company  whose  securities  are  listed  on  a  stock  exchange  may,  at  its  discretion  require any other connected person or class of connected persons to make disclosures of holdings and  trading  in  securities  of  the  company  in  such  form  and  at  such  frequency  as  may  be determined by the company in order to monitor compliance with these regulations.

Chapter IV

Regulation 8: Code of Fair Disclosure

1. The board  of  directors  of  every  company,  whose  securities  are  listed  on  a  stock  exchange, shall formulate and publish on its official website, a code of practices and procedures for  fair  disclosure of unpublished  price  sensitive information.

2. Every such  code  of  practices  and  procedures  for  fair  disclosure  of  unpublished  price sensitive information  and  every  amendment  thereto  shall  be  promptly  intimated  to  the  stock exchanges where the securities are listed.

(Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts has made to provide authentic information, it is suggested that to have better understanding kindly cross-check the relevant sections and rules. The observations of the author are personal view and the author do not take responsibility of the same.)

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