Insider Trading i.e. trading when in possession of Unpublished Price Sensitive Information (“UPSI”) is prohibited in India under SEBI (Prohibition of Insider Trading) (PIT) Regulations, 2015. However, there are certain Insiders like senior management personnel, KMP etc. who are perpetually in possession of UPSI due to their role and functionalities in their Company.
Therefore, by virtue of being in possession of UPSI perpetually, coupled with mandatory trading window closures for financial results and notional trading window closure whenever necessitated. Such Insiders possessing UPSI perpetually are left with very small window for carrying out trades in the securities of their Company.
So, to address the above issue, the concept of a “Trading Plan” was introduced under the SEBI (PIT) Regulations, 2015, allowing these perpetual Insiders to trade in a compliant manner in securities of their Company.
However, the provisions relating to Trading Plans appeared to be complex and burdensome in nature, particularly regarding timelines, mandatory execution, and other constraints.
These difficulties are evident in the number of trading plans adopted by Insiders over the past five financial years (presented below), which are in stark contrast to the number of designated persons and listed companies. Given the onerous nature of Trading Plan, the current numbers are abysmally low.
| Stock Exchange | 2018-19 | 2019-20 | 2020-21 | 2021-22 | 2022-23 |
|---|---|---|---|---|---|
| NSE | 20 | 38 | 23 | 31 | 12 |
| BSE | 17 | 31 | 20 | 24 | 64 |
Source: BSE and NSE
SEBI with an intention to encourage the use of Trading Plans issued a consultation paper dated November 24, 2023. The said consultation paper proposed to provide flexibility in the provisions related to Trading Plans, including adjustments to the cool-off period, minimum coverage period, elimination of blackout periods, applicability of contra trading provisions, and timelines for disclosure of trading plans.
In line with the same, SEBI through a notification dated June 25, 2024, has amended its Insider Trading Regulations via the SEBI (Prohibition of Insider Trading) (Second Amendment) Regulations, 2024. The changes are designed to ease and promote the practice of using Trading Plans by Insiders who are perpetually in possession of UPSI to trade in a compliant manner. The key amendments are as follows:
- Reduction in Cool-off Period: The cool-off period has been reduced from 6 months to 120 calendar days. This said reduction in cool-off time period will allow the Insiders to commence their trading plan earlier, after intimation of the trading plan to the Stock Exchange.
- Removal of Minimum Trading Plan Period: The previous requirement of a 12-month minimum period for a trading plan has been removed, allowing Insiders the flexibility to frame their trading plan as per their preferred timeframes.
- Removal of Black-out Period: Previously, trades during the blackout period were prohibited under the Trading Plan. The blackout period refers to the period between the twentieth 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. However, this restriction has been lifted, allowing Insiders more flexibility in executing trades.
- Mention Specific Trading Dates or Periods: Previously, the trading plan was required to specify 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 or dates on which such trades would occur. This requirement has now been amended to disclose either a specific date or a time period not exceeding five consecutive trading days, while other disclosures remain the same.
- Option to set Price Limits: In addition to the disclosures mentioned above, Insiders now have the option to establish a price range limited to +/- 20% of the buy/sell trades based on the closing price on the day before the submission of the trading plan. This provision offers Insiders a safety net by allowing them to avoid mandatory execution in case of unexpected price movements. The Insider will execute the trade only if the security’s execution price falls within this limit. If the security’s price exceeds the Insider’s set limit, the trade shall not be executed.
- Adjustments Pursuant to the Corporate Actions: This limit can be adjusted in the case of corporate actions related to bonus issue and stock split occurring after the approval of trading plan, subject to consultation with the Compliance Officer, which shall be further notified to the Stock Exchange.
- Trading cannot be commenced if UPSI does not become generally available before commencement of the Trading Plan: The implementation of execution of Trading Plan shall not be commenced if any Unpublished Price Sensitive Information (UPSI) in possession of an Insider at the time of formulating the trading plan has not become generally available. Therefore, the Insider must ensure that the Trading plan is commenced only after such UPSI has become generally available.
- Applicability of Contra Trade Restrictions: Previously, contra trade provisions did not apply to trades executed pursuant to Trading Plans. However, these contra trade restrictions are now applicable, preventing Insiders from engaging in conflicting trades during the execution of a Trading Plan.
- Exemptions from Mandatory Execution of Trading Plan: Earlier there were no such provisions given under the Regulations, however, these amendments allows for non-execution of the trading plan in cases such as adverse price movements, permanent incapacity, bankruptcy, operation of law, or inadequate liquidity in the scrip. The Insider must inform the Compliance Officer of such non-execution. The Compliance Officer shall then present the matter, along with recommendations, to the Audit Committee for their consideration. The Audit Committee will make the final decision on whether such non-implementation is bona fide or not. Subsequently, this decision must be communicated to the stock exchanges.
- Approval and Notification: The Compliance Officer must approve or reject the trading plan within two trading days of receipt and notify the approved plan to the stock exchanges on which the securities are listed on the day of approval.
These amendments aim to provide greater flexibility and ease of execution for Insiders while ensuring compliance with Insider trading regulations. By reducing the cool-off period, removing minimum and black-out period restrictions, and allowing price limits, SEBI has made trading plans a more viable and attractive option for Insiders who need to manage their trades while in possession of UPSI. The amendments also reinforce the importance of oversight and transparency, as seen in the requirement for Compliance Officer approval and Audit Committee review. Overall, these changes reflect SEBI’s commitment to evolving regulatory frameworks in line with market needs and best practices.”