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by persons who are in the management of the company or those who are connected to them on the basis of knowledge of an Unpublished Price Sensitive Information (UPSI) which is not available to the general public.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ii) “Unpublished Price Sensitive Information (UPSI)” means: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Communication or procurement of unpublished price sensitive information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- communicate, provide, or allow access to any unpublished price sensitive information,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- by any insider of unpublished price sensitive information,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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