Vallabh Joshi
Summary: Under SEBI (Prohibition of Insider Trading) Regulations, 2015, companies are not explicitly required to monitor the trades of designated persons post-resignation. However, SEBI clarified in a FAQ dated March 31, 2023, that companies must retain updated contact details of designated persons for one year post-resignation and preserve such data for five years. If a designated person possesses unpublished price-sensitive information (UPSI) at the time of leaving, their name remains in the company’s structured digital database as they may still hold this sensitive information. Consequently, their PAN is removed from mandatory freezing controls, potentially allowing for trades. SEBI’s guidance implies that while the organization must maintain contact records, it is the former designated person’s responsibility to avoid trading in the company’s securities until the UPSI becomes public. If such a person does trade, they must justify their actions, bearing the onus of proving they did not misuse UPSI.
Background
Securities and Exchange Board of India (Prohibition of Insider Trading), Regulations 2015 [‘SEBI PIT’] does not specify whether trading of designated persons and their immediate relatives needs to be tracked post their resignation. Securities and Exchange Board of India [‘SEBI’] in their FAQs dt: March 31, 2023[1] has at FAQ no. 48 stated that, “Upon resignation from service of designated person, a company/ intermediary/ fiduciary should maintain the updated address and contact details of such designated person. The company/intermediary/ fiduciary should make efforts to maintain updated address and contact details of such persons for one year after resignation from service. Such data should be preserved by the company/ intermediary/ fiduciary for a period of 5 years”.
If a designated person is in possession of unpublished price sensitive information at the time of resigning (i.e. at the time of getting relieved from listed company) and that unpublished price sensitive information is not yet made public, then whether trades of such designated persons need to be tracked or as specified by SEBI FAQ only updated address and contact details needs to be kept?
Analysis
As per SEBI FAQ no. 48 as stated above upon resignation updated address and contract details of designated persons needs to be kept for six months. Further name of that designated person would continue to be part of structured digital database maintained under regulation 3(5) of SEBI PIT as he will still be having access to UPSI. So even if a person is relieved from the services of the listed company, he would continue to be in possession of UPSI till that UPSI becomes public. Further post resignation as designated person his PAN would be removed from the facility of mandatory freezing.
This leads to a tricky situation. It is advisable to avoid dealing in securities of listed entity. It also needs to be kept in mind that in such scenarios if the connected person (i.e. designated person who has resigned from the listed entity) deals in the securities of the listed entity then the onus will be on him to justify his dealing in securities of listed entity[2].
[1] Comprehensive FAQs on SEBI (PIT) Regulations 2015
[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
Author Bio
