SEBI
(PROHIBITION OF INSIDER TRADING REGULATIONS) 2015
Overview:
SEBI
has notified and issued SEBI (Prohibition of Insider Trading) Regulations, 2015
on January 15, 2015. These regulations are notified to replace a two-decade
framework of earlier Prohibition of Insider Trading Regulations 1992.
In
addition to broadening the definitions of unpublished price-sensitive
information (UPSI), insider and connected persons, the legal perspective
suggests graver consequences for company officials involved in selective
exchange of information.
“Under the
new regulations, mere communication of UPSI would be punishable. Earlier,
Sebi's stand was that mere communication (without any trade) would not be
proceeded against. Companies now have to be even more careful not to reveal
UPSI selectively.”
Effective Date:
The New Regulations shall come into
force with effect from May 15, 2015.
Broader Explanation for Definitions and
New Insertions:
Who is an Insider?
Under
the new definition, an insider would mean a person in possession of or has
access to price-sensitive information or Connected Person.
SEBI
defines 'Insider' to include persons
connected on the basis of being in any contractual, fiduciary or employment
relationship that allows such people access to unpublished price sensitive
information (UPSI).
Who is a connected person?
This
is a new definition included in the new regulations by SEBI, where in, it
defines “connected person” as anyone
who is or has during the six months prior to the 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
employee. It also covers persons holding any position that allows access to
unpublished price-sensitive information.
The
above definition of connected person also brings into its ambit those persons
who may not seemingly occupy any position in a company but are in regular touch
with the company and its officers and are involved in the know of operations.
Generally
available information means information that is accessible to the public on a
non-discriminatory basis.
Note:
It is intended to define what constitutes generally available information so
that it is easier to crystallize and appreciate what unpublished price
sensitive information is. Information published on the website of a stock
exchange, would ordinarily be considered generally available.
Threshold Limit for Disclosures
[including KMP’s and Employees]:
The
Disclosures shall be made by Promoter’s/Director’s/KMP as well as employees on
crossing the threshold of Rs. 10 Lakhs in value as prescribed.
Duties of Compliance Officer:
The
new SEBI (PIT) Regulations, 2015 cast duties on the Compliance Officer of the
company who is appointed under the regulations including monitoring and
compliances of requirements under these regulations. Such duties are to be
undertaken very prudently.
For
instance, in case of employees where there is no requirement of initial
disclosure but continual disclosure is required to be made in case of
triggering the threshold. In such a case, it would be difficult for the
compliance officer to check whether compliances are made or not. Above this,
the regulations also put an onus on the company to intimate trading crossing a
threshold of Rs. 10 Lakh in value irrespective of the disclosure receive by the
employee as the Regulation 7(2)(b) states as follows:
“Every
Company shall notify the particulars of such trading to the stock exchange on
which the securities are listed within
two trading days of receipt of the disclosure or from becoming aware of such information.
As
per the new SEBI (PIT) 2015, it is very clear that the company shall put in a
place a system to monitor trading of all its employees unlike of designated
persons as were required under earlier regulations.
Trading Plans:
An insider shall be entitled to
formulate a trading plan and
present it to the compliance officer for approval and public disclosure
pursuant to which trades may be carried out on his behalf in accordance with
such plan.
This
provision intends to give an option to persons who may be perpetually in
possession of unpublished price sensitive information and enabling them to
trade in securities in a compliant manner. This
provision would enable the formulation of a trading plan by an insider to
enable him to plan for trades to be executed in future. By doing so, the
possession of unpublished price sensitive information when a trade under a
trading plan is actually executed would not prohibit the execution of such
trades that he had pre-decided even before the unpublished price sensitive
information came into being.
The
Trading plan shall comply with the requirements as follows:
i) It shall be submitted for a minimum period of 12 months.
ii) No Overlapping of plan with the existing plan submitted
by Insider
iii) It shall 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.
iv) Trading can only commence only after 6 months from
public disclosure of plan.
v) No trading between 20th day prior to closure
of financial period and 2nd trading day after disclosure of
financial results.
vi) Compliance Officer to approve the plan.
vii)The trading plan
once approved shall be irrevocable and 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.
(Except in few case like where insider is in possession of price sensitive
information at the time of formulations of the plan and such information has
not become generally available at the time of the commencement of
implementation.
viii) Upon approval of the trading plan, the compliance
officer shall notify the plan to the stock exchanges on which the securities
are listed.
Disclosure of Trading by Insiders:
The
disclosure to be made by any person shall also include those persons who are
immediate relatives to such person who are/have made the trading, and it also
includes any other person for whom such person takes trading decisions.
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. (please note that section 194 of CA, 2013 prohibits Director or KMP
from entering into forward dealings etc.)
Maintenance of disclosures:
The
disclosures made under these regulations shall be maintained by the company for
a minimum period of five years.
Classification of Disclosures:
a) Initial Disclosures
b) Continual Disclosures
Disclosures by certain persons:
a)
Initial Disclosure:
i)
Every promoter, KMP
and Director of every company whose securities are listed on any recognized
stock exchange shall disclose his/her holding of securities of the company as
on the date of these regulations talking effect, to the company within 30 days
of these regulations taking effect. (Effective
Date: May 15, 2015, Due Date: June 14, 2015)
ii) Every person on appointment as a KMP 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 seven days of such appointment or becoming a promoter.
b)
Continual Disclosures:
i) Every promoter, employee and Director of every company
shall disclose to the company the number of such securities acquired or disposed of within two working
days of such transaction if the value of the securities traded, whether in
one transaction of a series of transactions over any calendar quarter,
aggregates to a traded value in excess of ten lakh rupees or such other value
as may be specified.
ii) Every company shall notify the particulars of such
trading to the Stock Exchanges on which the securities are listed within two
trading days of receipt of the disclosure or from becoming aware of such
information.
Disclosure by other connected persons
Any
company whose securities are listed on a stock exchange may, at its discretion
require any other connected person or class of connected persons to make
disclosures of holding 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 with these regulations.
Code of Fair Disclosure:
Companies
need to establish a code of practices and procedures for fair disclosures of
unpublished price sensitive information.
The
new SEBI (PIT) Regulations 2015 intends the listed entities to formulate a
stated framework and policy for fair disclosure of events and occurrences that
could impact price discovery in the market for its securities.
The
principles as set out in the schedule are:
i)
Equality of access
to information.
ii) Publication of policies such as dividend, inorganic
growth pursuits, calls and meeting with analysts.
iii) Publication of such calls and meeting etc.
The
Code of practices and procedures for fair disclosures of unpublished price
sensitive information and every amendment thereto shall be promptly intimated
to the stock exchanges where the securities are listed.
Code of Conduct:
Every
Listed Company 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.
Every
listed company formulating a code of conduct shall indentify and designate a
compliance officer to administer the code of conduct and other requirements
under these regulations.
Question of Fact:
Under Section 195 of Companies Act, 2013, No
person including any director or Key managerial personnel of a Company shall
enter into insider trading, however in case of SEBI (PIT) Regulations, 2015, an
insider (which includes connected person) shall be entitled to formulate the
Trading Plan and get it approval from the Compliance Officer of the Company,
pursuant to which trades may be carried out on his behalf in accordance with
such plan.
CS K VINOTH
CS D HEM SENTHIL RAJ
csthenewera.blogspot.in
No comments:
Post a Comment