Trading Plan under Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 – Actionable and obligations
Introduction
Securities and Exchange Board of India (‘SEBI’) (Prohibition of Insider Trading) (Second Amendment) Regulations 2015 introduces revised provisions relating to Trading Plans[‘TP’]. A comprehensive newsletter on this amendment has already been published in MMJC Insights, detailing the changes.[1] In this newsletter we shall further analyzes the implications for listed companies of the revised provisions relating to TP.
A. Pointers for compliance officer for approving trading plan and checking if trading plan is implemented: As the provisions relating to TP are now revamped compliance officer shall create awareness amongst the designated persons with respect to the new provisions relating to TP. Revised TP provisions would come into effect from September 23, 2024. As per revised provisions compliance officer must now approve or reject a trading plan within two trading days of receipt of same and notify the stock exchanges on the same day[2].
In order to fulfil this timeline compliance officers will now be required to have a Standard Operating Procedure [‘SOP’] to streamline the approval or rejection of trading plans within a period of two trading days. Below are few pointers for compliance officers to approve or reject trading plans:
- Compliance officer to check whether Designated Person (‘DP’) who has submitted TP is in possession of UPSI as per entries in Structured Digital Database [‘SDD’]?
- To check whether DP who has submitted TP has specified the start date as 120 days after submission of TP? Undertaking from DP that they will not trade in shares during cool off period (i.e. 120 days)
- Review overall TP and ensure that it is not in violation of any provisions of PIT regulations.
- DP who has submitted TP has the number of securities for which he has submitted TP?
- Further to check that DP has submitted trades under TP are not in violation of provisions of contra trade?
- If price limit is fixed for execution of trades in TP then ensuring that the trades are executed at that price or as per price parameter as stated under PIT regulations.
- If DP who has submitted TP has or is in possession of USPI then whether that USPI would come into public by the date on which TP is going to start?
- Undertaking from DP that he will deal in securities specified in the TP if he is still in possession of UPSI which he had when he had submitted TP.
- Compliance Officer will have to keep monitoring trades of DP through weekly benpos to check whether DP has violated provisions of TP.
- Compliance Officer must monitor the implementation of TP. E.g. if TP has stated that DP will buy shares on say July 15 then it must be checked if he has actually bought such shares on July 15.
- Compliance officer shall ensure that TP are revised pursuant to any corporate action viz. if there is a bonus issue then compliance officer shall check whether this would lead to change in trading plans already published.
- Compliance officer to intimate audit committee, stock exchange about non implementation of TP and action taken by audit committee.
B. Amendments to code of conduct with respect to provisions relating to TP: If the Code of conduct (‘COC’) as per PIT provides for provisions relating to TP then COC would be required to be changed with amended provisions. Further revised trading plan provisions now provides that if designated persons fail to implement TP in part or full then they shall inform compliance officer. Compliance officer shall place the same before audit committee with his recommendations. If audit committee rejects reasons provided by DP in partial or full for non-implementation of TP then compliance officer can take appropriate action. In this regard COC shall provide for actions that can be taken in case of non- implementation of TP (either in part or full).
C. Scenarios in case of non-implementation of trading plan by designated person: Upon receipt of information from the insider about non-implementation of trading plan, the compliance officer must present it to the Audit Committee at the next immediate meeting alongwith his recommendations as to whether the reasons provided by DP not implementation of TP shall be accepted or not. The Audit Committee will then assess whether the non-implementation was for bona fide reasons.
To ascertain whether the reasons for non-implementation of TP were genuine or not SOP need to be framed basis which it can be ascertained whether the non-implementation was genuine?
D. Non-implementation of TP due to permanent incapacity, bankruptcy, or operation of law: Deviation from implementation of TP is allowed due to permanent incapacity, bankruptcy, or operation of law. Permanent incapacity, bankruptcy or operation of law are not defined under PIT regulations. Companies will have to amend COC suitably to define terms permanent incapacity, bankruptcy, operation of law. Deviation from implementation of TP due to permanent incapacity, bankruptcy, or operation of law signifies scenarios where it had become impossible for DP to implement TP. So a situation where for a DP it was difficult to implement TP (viz. network issue, insufficient funds, bank freezing due to non-KYC etc.) then it would not be considered as permanent incapacity. Permanent incapacity would mean a situation where it was impossible for a DP to implement the TP.
Conclusion:
Responsibilities of compliance officer has increased under the revised provisions of TP. Compliance officer needs to be vigilant about the TP submitted to ensure that they are implemented and if not then recommendations are made to audit committee with respect to such TP. As authority comes with responsibility compliance officers failing to ensure implementation of provisions of TP might have to face ire from SEBI.
The Article is written by Vallabh Joshi and Ruchira Pawase.
[1] https://www.mmjc.in/trading-plan-provisions-revamped/
[2] Reg. 5(5) of PIT
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