Understanding Changes/ Amendments to SEBI (Prohibition of Insider Trading) Regulations, 2015. – July 2020

SEBI has vide notification dated 17th July 2020, notified the Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations, 2020.

The amendment regulations amend certain regulations as well as certain clauses of the Schedules to the SEBI (Prohibition of Insider Trading) Regulations, 2015. (“PIT Regulations”)

This article / note discusses the key changes brought in by the amendment regulations. The detailed changes are given in comparison format in the table thereafter.

  • Under Regulation 5 of the PIT Regulations, the Board of Directors of every listed Company was required to maintain a structured digital database whenever Unpublished Price Sensitive Information (UPSI) was shared to any person. Since many Companies had opted for online solutions provided by the RTAs for monitoring of PIT regulations compliances, the database was also maintained through the RTAs/ online solution providers.

The amended Regulation 5, now makes 3 important changes:

  • The requirement of maintaining structured digital database is extended to other entities i.e. Intermediaries or Fiduciaries with whom UPSI is shared. Now all such Intermediaries or Fiduciaries are also required to maintain a structured digital database, in addition to the listed Company. If a listed company engaged a law firm or a merchant banker for the purpose of fund raising exercise of the listed company, and UPSI is shared with them, then such Law firm or the merchant banker is also required to maintain database of the employees or persons with whom such law firm/ merchant banker shares the UPSI.
  • Under the new amendment, the structured digital database is also to include following additional information i.e. the nature of unpublished price sensitive information and the names of such persons who have shared the information.

By this amendment SEBI seeks to maintain data to pinpoint a specific person who is sharing the UPSI from / on behalf of the Company and also the nature of information shared.  Companies will be required to update their database maintenance requirements accordingly to include these fields of information.

  • The structured digital database is now required to be maintained internally by the listed company/ intermediaries/ fiduciaries and same cannot be outsourced.

Companies/ Intermediaries/ Fiduciaries will have to take necessary action to maintain and update the database internally and cannot keep such database with an outsourced entity.

  • A new regulation 6 has been inserted to provide that the structured digital database is required to be maintained for a period of 8 years from the entry therein. However, if there is any investigation / enforcement proceedings by SEBI, then the relevant information is required to be maintained till completion of such proceedings, irrespective of the 8 year period.

This clause gives clarity about the period for which the information was required to be maintained by the listed companies/ others in the structured digital database.

  • In Schedule B – dealing with Code of Conduct for Listed Companies, Clause 12 has been replaced with a new clause. Under this clause, in case of a violation by a Designated Person, if there is any amount collected by the Listed Company from such person, the Company is now required to remit the same to SEBI for credit to IEPF established by SEBI. (not IEPF under MCA)

This amendment ensures that any amount collected by Listed Companies as fine etc are not kept by themselves but utilized for investor purposes.

  • In Schedule B – dealing with Code of Conduct for Listed Companies, Clause 13 has been replaced with a new clause. The new clause provides that in case of any violation of the Code of Conduct, the Listed Company shall now promptly inform the Stock Exchanges (and not to SEBI, as earlier required) about such violation in a form/ manner as SEBI may specify.

SEBI has vide circular dated July 19, 2019 had prescribed a format for reporting violations under Code of Conduct. Listed Companies are required to report any violations promptly inform the Stock Exchanges, to duly comply with the requirement under this new clause.

  • In Schedule C – dealing with Code of Conduct for Intermediaries and Fiduciaries, old clause 10 has been replaced with new clause. This clause is on similar line of Clause 12 of Schedule B, i.e. in case of a violation by a Designated Person, if there is any amount collected by the Intermediaries/ Fiduciaries from such person, then the entity is now required to remit the same to SEBI for credit to IEPF established by SEBI. (not IEPF under MCA)
  • In schedule C – dealing with Code of Conduct for Intermediaries and Fiduciaries, old clause 11 has been replaced with new clause. The new clause provides that in case of any violation of the Code of Conduct, the Intermediaries/ Fiduciaries shall now promptly inform the Stock Exchanges (and not to SEBI, as earlier required) about such violation in a form/ manner as specified by SEBI.

Therefore even non listed Intermediaries/ Fiduciaries are required to inform the Stock Exchanges about violation of Code of Conduct. The format for the same is already prescribed by SEBI vide circular dated July 19, 2019.

A comparative chart of the amendments brought in on July 17, 2020 is given below for reference.

Reference Old Regulation/ Clause New Regulation/ Clause Nature of Change/ Remarks
Regulation 5 – PIT Regulations (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 available. Such databases shall be maintained with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database. (5) The board of directors or head(s) of the organisation of every person required to handle unpublished price sensitive information shall ensure that a structured digital database is maintained containing the nature of unpublished price sensitive information and the names of such persons who have shared the information and also the names of such persons 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 available. Such database shall not be outsourced and shall be maintained internally with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database.” Amendment to existing clause
Regulation 6 – PIT Regulations NA 6. The board of directors or head(s) of the organisation of every person required to handle unpublished price sensitive information shall ensure that the structured digital database is preserved for a period of not less than eight years after completion of the relevant transactions and in the event of receipt of any information from the Board regarding any investigation or enforcement proceedings, the relevant information in the structured digital database shall be preserved till the completion of such proceedings.” Insertion of new clause
PIT Regulations – Regulation 7, in sub-regulation 2, after clause (b) NA (c) The above disclosures shall be made in such form and such manner as may be specified by the Board from time to time.” New insertion- to give legal force to the formats notified by SEBI
Schedule B – Code of Conduct by Listed Companies –  Clause 4, sub-clause 3 (b), (3) The trading window restrictions mentioned in sub –clause (1) shall not apply in respect of ….

(b)transactions  which  are  undertaken in  accordance  with respective  regulations  made  by  the

Board  such  as  acquisition  by  conversion  of  warrants  or debentures, subscribing  to rights  issue, further public issue, preferential allotment or tendering of shares in a buy-back offer, open offer, delisting offer.

(3) The trading window restrictions mentioned in sub –clause (1) shall not apply in respect of ….

(b)transactions  which  are  undertaken in  accordance  with respective  regulations  made  by  the

Board  such  as  acquisition  by  conversion  of  warrants  or debentures, subscribing  to rights  issue, further public issue, preferential allotment or tendering of shares in a buy-back offer, open offer, delisting offer or transactions which are undertaken through such other mechanism as may be specified by the Board from time to time.

Amendment to existing clause
Schedule B – Code of Conduct by Listed Companies – Clause 12 Without prejudice to the power of the Board under the Act, the code of conduct shall stipulate the sanctions and disciplinary actions, including wage freeze, suspension, recovery, clawback etc., that may be imposed, by the listed company required to formulate a code of conduct under sub-regulation (1) of regulation 9, for the contravention of the code of conduct. Without prejudice to the power of the Board under the Act, the code of conduct shall stipulate the sanctions and disciplinary actions, including wage freeze, suspension, recovery, clawback etc., that may be imposed, by the listed company required to formulate a code of conduct under sub-regulation (1) of regulation 9, for the contravention of the code of conduct. Any amount collected under this clause shall be remitted to the Board for credit to the Investor Protection and Education Fund administered by the Board under the Act.” Amendment to existing clause
Schedule B – Code of Conduct by Listed Companies – Clause 13 The code of conduct shall specify that in case it is observed by the listed company required to formulate a code of conduct under sub-regulation (1) of regulation 9, that there has been a violation of these regulations, it shall inform the Board promptly. The code of conduct shall specify that in case it is observed by the listed company required to formulate a code of conduct under sub-regulation (1) of regulation 9, that there has been a violation of these regulations, it shall promptly inform the stock exchange(s) where the concerned securities are traded, in such form and such manner as may be specified by the Board from time to time”.
Schedule C – Code of Conduct for Intermediaries and Fiduciaries – Clause 10 10. Without prejudice to the power of the Board under the Act, the code of conduct shall stipulate the sanctions and disciplinary actions, including wage freeze, suspension, recovery, clawback etc., that may be imposed, by the intermediary or fiduciary required to formulate a code of conduct under sub-regulation (1) and sub-regulation (2) of regulation 9, for the contravention of the code of conduct. Without prejudice to the power of the Board under the Act, the code of conduct shall stipulate the sanctions and disciplinary actions, including wage freeze, suspension, recovery, clawback etc., that may be imposed, by the intermediary or fiduciary required to formulate a code of conduct under sub-regulation (1) and sub-regulation (2) of regulation 9, for the contravention of the code of conduct. Any amount collected under this clause shall be remitted to the Board for credit to the Investor Protection and Education Fund administered by the Board under the Act.”  Amendment to existing clause
Schedule C – Code of Conduct for Intermediaries and Fiduciaries – Clause 11 The code of conduct shall specify that in case it is observed by the intermediary or fiduciary required to formulate a code of conduct under sub-regulation (1) or sub-regulation (2) of regulation 9, respectively, that there has been a violation of these regulations, such intermediary or fiduciary shall inform the Board promptly. The code of conduct shall specify that in case it is observed by the intermediary or fiduciary required to formulate a code of conduct under sub-regulation (1) or sub-regulation (2) of regulation 9, respectively, that there has been a violation of these regulations, such intermediary or fiduciary shall promptly inform the stock exchange(s) where the concerned securities are traded, in such form and such manner as may be specified by the Board from time to time.

 

Amendment to existing clause

All listed companies and other connected entities would be required to take necessary steps to comply with these amendments.

The Author is a Practising Company Secretary in Mumbai and can be reached at amit.jaste@ajcs.in.  This Article does not substitute professional advice and the Author shall not be responsible for any claims based on actions taken in reliance of this Article.

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Author Bio

Qualification: CS
Company: Amit Jaste and Associates. Practising Company Secretaries
Location: MUMBAI, Maharashtra, IN
Member Since: 20 Jul 2020 | Total Posts: 1

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