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Insider Trading

 

Team LawDocs

The Securities and Exchange Board of India (“SEBI”) has continuously tried to improve regulations. Through, amendments in 2018 and 2019 after the revision of the insider trading system. With the implementation of the SEBI (Prohibition of Insider Trading) Regulations, 2015. SEBI notified the Securities and Exchange Board of India (Insider Trading Prohibition) (Amendment) Rules, 2020 on July 17, 2020. To introduce more amendments to the PIT Regulations.

Contents  hide 

1 (Prohibition of Insider Trading) (Amendment) Regulations, 2020

1.1 SEBI has also incorporated the following necessary amendments:

2 Circular dated July 23, 2020.

2.1 References

3 Related

(Prohibition of Insider Trading) (Amendment) Regulations, 2020

The PIT Amendment include the following key changes:

  • “Enhancement of the structured digital database towards seeking and storing additional details of persons sharing unpublished price sensitive information (“UPSI”)
  • Automation of shareholding disclosures and change in reporting authority for making disclosures of PIT violations by listed entities, market intermediaries and fiduciaries.
  • Introduction for additional transactional mechanisms as an exception to trading window restrictions.”[1]

Earlier, a listed company’s board of directors was expected to simply maintain a standardised digital database containing UPSI recipients’ names and permanent account numbers. This Directive had given rise to inquiries as to the manner in which the listed entities were required to record information where an agent or fiduciary consisted of the UPSI receiver, given that the listed companies also communicate with them.

This address by SEBI via its FAQs release in November 2019, in which it explained that in cases where UPSI share with intermediaries / trustees, the listed company would require to maintain the recipient entity ‘s information, while the intermediary / trustee would require to maintain a list of people with access to UPSI. Now, through this PIT Amendment, SEBI has instructed all entities handling UPSI to maintain such a standardised digital database in an effort to improve the level of enforcement.

SEBI also ensure that additional information, including the purpose of the UPSI and the names of persons who share it with others (besides the recipients’ details), are sought and store in this database.

SEBI has also incorporated the following necessary amendments:

  • “Maintenance of structured digital database for a period of 8 (eight) years after completion of the relevant transaction, except in case of any pending enforcement or investigative proceeding by SEBI: While, optically, this duration may seem excessive in comparison to the typical regulatory requirement of 5 (five) years under AML laws, SEBI has chosen to align this period with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and similarly, Section 128 of the Companies Act, 2013. This move would also avoid any roadblocks or challenges in obtaining information during investigations conducted by SEBI.
  • Prohibition on outsourcing maintenance of the internal database: While entities routinely outsource their technology and IT functions, SEBI has strictly restricted outsourcing this database to third party service providers. Given that this database will hold a growing number of personal details of UPSI providers and recipients couple with the listed entity’s own UPSI, the maintenance of the database itself would be sensitive operation and would have to be handled by entities in-house.”[2]

Circular dated July 23, 2020.

Although the latest SEBI circular dated July 23, 2020. Marginally, modifies the standard reporting violation format set out in July 2019. The PIT amendment and this circular both bring about a major change in the reporting matrix. With effect from this provision, all listed companies, intermediaries and trustees shall apply to the securities market. Regulator a standard format defining the stock exchange(s) infringement(s). Where the securities concern are exchange, and not the securities market regulator.

For the listed entities, from a market movement or surveillance perspective. This change of guard from SEBI to stock exchanges continues to be important. However, for all parties concerned, the obligation for unlisted intermediaries / fiduciaries. To notify stock exchanges of any breach of their Code of Conduct seems to be an incongruous stipulation. Considering, that such organisations will usually have no contact with stock exchanges (unlike listed companies).

The Circular also offers payment information for the remission of penalties levied by entities. On their designated persons in violation of the Investor Security and Education Fund Code of Conduct administered by SEBI.

Earlier, as part of the action taken on the discovery of the infringement, organisations will sometimes. Without SEBI ‘s proper clarification as to where such sums are to deposit, penalise their designate persons. With this circular in effect, all proceeds of this sort will have to pass to investor interests.

References

[1] (Prohibition of Insider Trading) (Amendment) Regulations, 2020.

[2] Ibid.

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