Defining the term “Proposed to be listed”.

With the ambiguity circling around the term proposed to be listed under Regulation 3 and 4 of SEBI (PIT) Regulations, 2015 (“existing insider law”), SEBI has clarified that no insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a any securities of an unlisted company:

1. if such unlisted company has filed offer documents or other documents, as the case may be, with the Board, stock exchange(s) or registrar of companies in connection with the listing; or
2. if such unlisted company is getting listed pursuant to any merger or amalgamation and has filed a copy of such scheme of merger or amalgamation under the Companies Act, 2013.

Omission of material events in accordance with listing agreement from the definition of unpublished price sensitive information (“UPSI”).

De – linking with regulation 30 of SEBI (LODR) Regulations, 2015, SEBI vide this amendment has made it clear that every material transaction may or may not have an impact on the price of the securities. Hence, a gateway has been given that if any material event not affecting the market price shall not be construed as UPSI.

Implementation of policy w.r.t. sharing of UPSI for “legitimate purposes”.

As per existing Insider law, UPSI is only to be communicated for legitimate purpose. An explanation as to what may constitute “legitimate purpose” is now provided.

Also, listed Company are now required to modify their Codes of Fair Disclosure and Conduct to include therein a “policy for determination of legitimate purpose”.

The policy in briefly shall:

• Define legitimate purpose for which UPSI can be shared
• Process and mode of sharing the information
• Pre – requisites information / documents / undertakings required before sharing any UPSI.

Setting and maintaining of Structured Digital Database.

The Board of Directors of listed entities have now been directed that they shall set and maintain a database in digital form which shall contain the following information:

1. Name of persons / entities with whom UPSI has been shared
2. Permanent Account Number s or any other identifier authorized by law where Permanent Account Number is not available

Further 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.

Onus to prove now been shifted from SEBI to person executing trades

It is now specifically provided under the amended regulations that “a person who execute trades in securities while having possession of USPI would be presumed to have been motivated by the knowledge and awareness of UPSI in his possession. Thus onus to prove that trades were executed otherwise is shifted on the person trading and SEBI is not under the obligation to prove beyond doubt that trades were executed with UPSI.

Expanding the ambit of exclusions pertaining to trading while in possession of UPSI.

Vide these amendments, SEBI has expanded the scope of trading by insiders while in possession of UPSI. Now, following scenarios are included by which insiders can trade and demonstrate their innocence while having hands on any UPSI:

1. Inter – se transfer between “Insiders” who were in possession of the same UPSI (not obtained pursuant to regulation 3 of existing insider law)and had made a conscious and informed trade decision
2. Transfer through Block deal mechanism between insiders who were in possession of the same UPSI (not obtained pursuant to regulation 3 of existing insider law)and had made a conscious and informed trade decision
3. Trading pursuant to fulfillment of a statutory or regulatory obligations.
4. Exercise of stock options (where exercise price was pre-determined in compliance with SEBI (SBEB) Regulations, 2014.

Mandatory reporting of Inter – se transfer between insiders while in possession of UPSI.

With increasing the ambit of inter se transfers from promoters to all insiders, a secured net is also provided wherein all such off – market trades shall be reported by the insiders to the company within two working days.

Further every company shall notify the particulars of such trades to the stock exchange on which the securities are listed within two trading days from receipt of the disclosure or from becoming aware of such information. Hence now all such transactions are need to be made public through such process.

Clarification w.r.t. filing continual disclosures from employee to designated persons.

Clearing the ambiguity and practical difficulties involved in ensuring that each and every employee of the Company files a disclosure under existing insider law, It has now specified that Every promoter, designated person and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees.

Also, the amended regulations have widened the definition of designated persons defined under Code of conduct to be formulated by Listed Companies, Intermediaries and other persons.

Now it is mandatory to include the following under the umbrella of designated person:

1. Employees of such listed company, intermediary or fiduciary designated on the basis of their functional role or access to unpublished price sensitive information in the organization by their board of directors or analogous body;
2. Employees of material subsidiaries of such listed companies designated on the basis of their functional role or access to unpublished price sensitive information in the organization by their board of directors;
3. All promoters of listed companies and promoters who are individuals or investment companies for intermediaries or fiduciaries;
4. Chief Executive Officer and employees upto two levels below Chief Executive Officer of such listed company, intermediary, fiduciary and its material subsidiaries irrespective of their functional role in the company or ability to have access to unpublished price sensitive information;
5. Any support staff of listed company, intermediary or fiduciary such as IT staff or secretarial staff who have access to unpublished price sensitive information.

Widening the scope of Code of conduct for Listed Companies, Intermediaries and other persons.

Earlier Listed Companies and Market Intermediaries were required to have code of conduct as per Schedule B of the existing insider law.

However the amended regulations have widened the scope and now all intermediaries are required to formulate modified Code of Conduct as per Schedule C (as provided under amended regulations).

More importantly all Fiduciaries such as auditors, accountancy firms, law firms, analysts, insolvency professional entities, consultants, banks etc.,  are also required to formulate Code of Conduct as per Schedule C

Institutional Mechanism for Prevention of Insider trading.

Now every listed company, intermediary or fiduciary shall put in place adequate and effective system of internal controls to ensure compliance with the requirements given in these regulations to prevent insider trading and a periodic process shall also be specified to evaluate the effectiveness of such Internal Controls.

Review of Internal Control system by the Audit Committee.

The Audit Committee of a listed company or other analogous body for intermediary or fiduciary shall review compliance with the provisions of these regulations at least once in a financial year and shall verify that the systems for internal control are adequate and are operating effectively

Enforcing whistle blower policy for tightening the norms of leak / suspected leak of UPSI and reporting thereof

The listed entities shall now have a specific whistle blower policy specifying the procedures for inquiry in case of leak or suspected leak of UPSI.

Clarifying aspects of Trading Plan

The amended regulations have clarified that:

1. Pre-clearance of trades shall not be required for a trade executed as per an approved trading plan.
2. Trading window norms and restrictions on contra trade shall not be applicable for trades carried out in accordance with an approved trading plan.”

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