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SEBI approves new regulations to deter insider trading in securities
New Delhi, November 19, 2014
The Securities and Exchange Board of India (SEBI) today approved new regulations in place of the SEBI (Prohibition of Insider Trading) Regulations, 1992 designed to deter the practice of insider trading in the securities of listed companies.
The new regulations, approved by the SEBI Board which met here today, will be in place of the existing regulations, a press release from the market regulator said.
The release pointed out that two decades had passed since the SEBI (Prohibition of Insider Trading) Regulations, 1992 were notified and, since then, there had been several amendments to the regulations. Judicial paradigm through case laws had also evolved in India, it said.
To ensure that the regulatory framework dealing with insider trading in India is further strengthened, SEBI sought review of the extant Insider Trading regulatory regime and constituted a committee under the chairmanship of Justice N. K. Sodhi.
The SEBI Board deliberated on the recommendations of the committe today and public comments received on them.
"The new regulations strengthen the legal and enforcement framework, align Indian regime with international practices, provide clarity with respect to the definitions and concepts, and facilitate legitimate business transactions," the release said.
According to the release, the salient features of the regulations are:
(A) STRENGTHENING THE LEGAL AND ENFORCEMENT FRAMEWORK
(i) The definition of Insider has been made wider by including persons connected on the basis of being in any contractual, fiduciary or employment relationship that allows such person access to unpublished price sensitive information (UPSI). However directors, employees and all other persons in the deeming category covered under 1992 regulations would continue to be covered. Insider will also include a person who is in possession or has access to UPSI. Now, immediate relatives will be presumed to be connected persons, with a right to rebut the presumption. In 1992 regulations, definition of connected person was largely position based.
(ii) In the case of connected persons the onus of establishing, that they were not in possession of UPSI, shall be on such connected persons.
(iii) Clear prohibition on communication of unpublished price sensitive information (UPSI) has been provided except legitimate purposes, performance of duties or discharge of legal obligations.
(iv) Considering every investor's interest in securities market, advance disclosure of UPSI at least 2 days prior to trading has been made mandatory in case of permitted communication of UPSI.
(v) UPSI has been defined as information not generally available and which may impact the price. The definition of UPSI has been strengthened by providing a test to identify price sensitive information, aligning it with listing agreement and providing platform of disclosure. Earlier, the definition of price sensitive information had reference to company only; now it has reference to both a company and securities.
(vi) Generally Available Information will be the information that is accessible to the public on a non-discriminatory platform which would ordinarily be stock exchange platform.
(vii) Companies by law would be entitled to require third-party connected persons to disclose their trading and holdings in securities of the company.
(viii) In line with Companies Act, 2013, prohibition on derivative trading by directors and KMPs on securities of the company has been provided.
(B) ALIGNING INSIDER TRADING NORMS WITH INTERNATIONAL PRACTICES
(i) The requirement of communication of UPSI in the case of legitimate business transaction has been recognized in law and a carve-out with safeguards has been provided. [Reference to A (iii) and (iv) above]
(ii) Disclosure of UPSI in public domain has been made mandatory before trading, so as to rule out asymmetry of information in the market, as prevalent in other jurisdictions. [Reference to A (iv) above]
(iii) A provision of Trading Plans on the lines of U.S. has been introduced for insiders with necessary safeguards. Such a plan has to be for bona fide transactions and has to be disclosed on stock exchange platform in advance.
(C) CLARITY IN THE DEFINITIONS AND CONCEPTS
(i) With important provisions, clarificatory notes have been inserted in the regulations itself.
(ii) Clarity has been brought to the definition of UPSI by aligning it with listing agreement and making the definition inclusive.
(iii) To provide clarity, Generally Available Information has been defined as information that is accessible to public on a non-discriminatory platform such as stock exchange. [Reference to A (vi) above]
(iv) Clarity about timing of disclosure of UPSI has been provided and the trading window norms have been made uniform to other connected persons.
(D) FACILITATING LEGITIMATE BUSINESS TRANSACTIONS
(i) To facilitate legitimate business transactions, unpublished price sensitive information (UPSI) can be communicated with safeguards. [reference to A (iii) & (iv) above]
(ii) Insiders who are liable to possess UPSI all round the year would have the option to formulate pre-scheduled trading plans. Trading plans would, however, to be disclosed on the stock exchanges and have to be strictly adhered to. Trading plans shall be available for bona fide transactions.
(iii) Principle based Code of Fair Disclosure and Code of Conduct has been prescribed.
(iv) In given cases, certain circumstances which can be demonstrated by an insider to prove his innocence have been provided.
(v) Repeated disclosures have been removed so as to ease compliance burden and to align with Takeover Code. Disclosure of any change of 2% for persons holding more than 5% shares or voting rights has been removed as they are prescribed under Takeover Code.