In
exercise of the powers conferred under Section 30 read with Section 11
(2)(g) of SEBI Act, 1992, the Board make the ‘Securities and Exchange
Board of India (Prohibition of Insider Trading) Regulations, 2015
(‘Regulations’ for short)-
to put in place a framework for prohibition of insider trading in securities; and
to strengthen the legal framework.
The
Regulations were notified by Notification No. LAD-NRO/GN/21/85, dated
15.01.2015 repealing the SEBI (Prohibition of Insider Trading)
Regulations, 1992.
Who is an insider?
Regulation 2(g) defines the term ‘insider’ as any person who is-
a connected person; or
in possession of or having access to unpublished price sensitive information.
To
have a full view for the meaning of the term ‘insider’ it is necessary
to know the definition of ‘connected person’ and ‘unpublished price
sensitive information’.
Connected person
Regulation 2(d) defines the term ‘connected person’ as-
any
person who is or has during the six months prior to the concerned act
been associated with a company, directly or indirectly, in any capacity
including by reason of frequent communication with its officers or by
being in any contractual fiduciary or employment relationship or by
being a director, officer or an employee of the company or holds any
position including a professional or business relationship between
himself and the company whether temporary or permanent, that allows such
person, directly or indirectly, access to unpublished price sensitive
information or is reasonably expected to allow such access;
the following persons shall be deemed to be connected persons unless the contrary is established-
an
immediate relative ( a spouse of a person and includes parent, sibling
and child of such person or of the spouse, any of whom is either
dependent financially on such person or consults such person in taking
decisions relating to trading activities) of connected persons as
specified above; or
a holding company or associate company or subsidiary company; or
an intermediary or an employee or director thereof; or
an investment company, trustee company, asset management company, or an employee or director thereof; or
an official of a stock exchange or of clearing house or corporation; or
a
member of board of trustees of a mutual fund or a member of board of
directors of asset management company of mutual funds or is an employee
thereof; or
a member of the board of director or an employee of a public financial institution;
an official or an employee of a self regulatory organization recognized or authorized by the Board;
a banker of the company; or
a
concern, firm, trust, HUF, company or association of person wherein a
director of a company or his immediate relative or banker of the
company, has more than 10% of the holding of interest.
Unpublished price sensitive information
Regulation
2(n) defines the expression ‘unpublished price sensitive information’
as any information, relating to a company or its securities, directly or
indirectly, that is not generally available which upon becoming
generally available, is likely to materially affect the price of the
securities and shall, ordinarily including but not restricted to,
information relating to the following:
financial results;
dividends;
change in capital structure;
mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other transactions;
changes in key managerial personnel; and
material events in accordance with the listing agreement.
Obligation on insider
Regulation 3(1) and (2) imposes some obligations on the insider as detailed below:
An
insider shall not 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;
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;
Communication of unpublished information
Regulation
3(3) provides that an unpublished price sensitive information may be
communicated, provided, allowed access to or procured, in connection
with a transaction that would-
entail an obligation to
make an open offer under the takeover guidelines where the board of
directors of the company is of informed opinion that the proposed
transaction is the best interests of the company;
not
attract the obligation to make an open offer under the takeover
regulations but where the board is of informed opinion that the proposed
transaction is the best interests of the company and the information
that constitute, unpublished price sensitive information is disseminated
to be made generally available at least two trading days prior to the
proposed transaction being effected in such form as the board of
directors may determine;
Agreements by Board of Directors
Regulation
3(4) provides that the board of directors for the purposes of
Regulation 3(3) shall require the parties to execute agreements to
contract confidentiality and non disclosure obligations on the part of
such parties and such parties shall keep information so received
confidential, except for the purpose of Regulation 3(3) and shall
otherwise trade in securities of the company when in possession of
unpublished price sensitive information
Trading on possession of unpublished price sensitive information
Regulation
4(1) provides that an insider shall not trade in securities that are
listed or proposed to be listed on a stock exchange when in possession
of unpublished price sensitive information. The insider may prove his
innocence by demonstrating the circumstances including the following:
the
transaction is an off-market inter-se transfer between promoters who
were in possession of the same unpublished price sensitive information
without being in breach of Regulation 3 and both parties had made a
conscious and informed trade decision;
in the case of non individual insiders-
the
individuals who were in possession of such unpublished price sensitive
information were different from the individuals taking trading decisions
and such persons were not in possession of such unpublished price
sensitive information when they took the decision to trade; an
appropriate
and adequate arrangements were in place to ensure that these
regulations are not violated and no un-published price sensitive
information was communicated by the individuals possessing the
information to the individuals taking trade decisions and there is no
evidence of such arrangements having been breached;
the trades were pursuant to a trading plan.
Regulation
4(2) provides that 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 is on the Board.
Regulation
4(3) provides that the Board may specify such standards and
requirements from time to time as it may deem necessary for the purpose
of these regulations.
Trading plans
Regulation
5(1) provides that an insider shall be entitled to formulate a trading
plan and present it to the compliance office for approval and public
disclosure pursuant to which trades may be carried out on his behalf in
accordance with such plan.
Regulation 5(2) provides that such trade plan shall-
not entail commencement of trading on behalf of the insider earlier than six months from the public disclosures of the plan;
not
entail trading for the period between the 21th trading day prior to the
last day of any financial period for which results are required to be
announced by the issuer of the securities and the second trading day
after the disclosure of such financial results;
entail trading for a period of not less than 12 months;
not entail overlap of any period for which another trading plan is already in existence;
set
out either the value of trades to be effected or the number of
securities to be traded along with the nature of the trade and the
intervals at, or dates on which such trades shall be effected; an
not entail trading in securities for market abuse.
Regulation
5(3) provides that the compliance officer would have to review and
approve the plan. He may need the insider to declare that he is not in
possession of unpublished price sensitive information or that he would
ensure that any such information in his possession becomes generally
available before he commences executing his trades. If he is
satisfied, he may approve the trading plan that is to be implemented in
accordance with these regulations.
Regulation 5(4)
provides that the trading plan once approved shall be irrevocable. The
insider shall mandatorily have to implement the plan without being
entitled to either deviate from it or to execute any trade in the
securities outside the scope of the trading plan. Despite the 6 month
gap between the formulation of the trading plan and its commencement,
the unpublished price sensitive information in possession of the insider
is still not generally available. In such a situation, commencement
of the plan would conflict with the over-riding principle that trades
should not be executed when in possession of such information. If the
same information is still in the insider’s possession, the commencement
of execution of the trading plan ought to be deferred.
Regulation
5(5) provides that upon approval of the trading plan, the compliance
officer shall notify the plan to the stock exchanges on which the
securities are listed.
Disclosures of trading by insiders
Regulation 6(1) provides that every public disclosure shall be made as specified in Schedule A as detailed below:
prompt
public disclosures of unpublished price sensitive information that
would impact price discovery no sooner than credible and concrete
information comes into being in order to make such information generally
available;
uniform and universal dissemination of unpublished price sensitive information to avoid selective disclosure;
Designation
of a senior officer as Chief investor relations officer to deal with
dissemination of information and disclosure of information;
Prompt
dissemination of information that gets disclosed selectively,
inadvertently or otherwise to make such information generally available;
Appropriate
and fair response to queries on news reports and requests for
verification of market rumors by regulatory authorities;
Ensuring that information shared with analysis and research personnel is not unpublished price sensitive information;
Developing
best practices to make transcripts or records of proceedings of
meetings with analysts and other investor relations conferences on the
official website to ensure official confirmation and documentation of
disclosures made;
Handling of all unpublished price sensitive information on a need-to-know basis.
Regulation
6(2) that the disclosures to be made by any person 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) provides that 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, provided the trading in
derivatives of securities is permitted by any law for the time being in
force.
Rule 6(4) provides that the disclosures made
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 provides for initial disclosures, continual disclosures and disclosures by other connected persons.
Regulation
7(1) provides for initial disclosures. It provides that every
promoter, key managerial personnel and director of every company, whose
securities are listed shall disclose his holding of securities of the
company as on the date of these regulations taking effect to the company
within 30 days of these regulations taking effect. Every person on
appointment as a key managerial personnel or a director of the company
or upon becoming a promoter shall disclose his holding of securities of
the company as on the date of appointment or becoming a promoter, to the
company within 7 days of such appointment or becoming a promoter.
Regulation
7(2) provides for continual disclosures. Every promoter, employee and
director shall disclosure to the company the number of such securities
acquired or disposed of within 2 trading days of such transaction, if
the values of the securities traded, in excess of ₹ 10 lakh or such
other value as may be specified. Every company shall notify the
particulars of such trading to the stock exchanges within 2 trading days
of receipt of the disclosure or from becoming aware of such
information.
Regulation 7(3) provides for disclosures
by other connected persons. Any company whose securities are listed
may at its discretion require any other connected person or class of
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.
Code for disclosure
Regulation
8 provides for the code of fair disclosure. The Board of Directors
shall formulate and publish on its official website, a code of practices
and procedures for fair disclosures of unpublished price sensitive
information that it would follow in order to adhere to each of the
principles set out in Schedule A without diluting the provisions in any
manner. Every such code of practices and procedures for fair disclosure
shall be promptly intimated to the stock exchange.
Code of conduct
Regulation
9 provides for the code of conduct. The Board of Directors shall
formulate a code of conduct to regulate, monitor and report trading by
its employees and other connected persons towards achieving compliance
with these regulations adopting minimum standards set out in Schedule B
without diluting these regulations.
Every
other person who is required to handle unpublished information in the
course of business operations shall formulate a code of conduct to
regulate, monitor and report trading by employees and other connected
persons. Every listed company, market intermediary and other persons
formulating a code of conduct shall identify and designate a compliance
officer to administer the code of conduct and other requirements.
Action for violations
Regulation
10 provides that any contravention of these regulations shall be dealt
with by the Board in accordance with SEBI Act.