Any/all views expressed herein belong solely to the author and do not reflect the view/opinions of any organisation.
Insider Trading involves trading in securities with the advantage of having asymmetric access to unpublished price sensitive information. [1] It is an element of market abuse and erodes the confidence of investors in the market and the integrity of price discovery.[2]
In this post, we will understand the nuances of SEBI’s regulations prohibiting insider trading. This will include an understanding of what is prohibited, who is an insider, what systems are required to be established by various entities, towards prevention of insider trading. Further, we will understand the safeguards within which insiders have been permitted to trade in securities in a compliant manner. We will also see how the prohibitions are monitored and enforced, by short analyses of decisions of SEBI, the Securities Appellate Tribunal and the Supreme Court.
This is a live blog and will be updated from time to time, capturing regulatory changes and decisions of SEBI, Securities Appellate Tribunal and the Supreme Court.
Legal Design of SEBI Act, 1992 – a Review
In Historical Underpinnings Part IX, we saw how insider trading long predated SEBI and its prohibition was one of the objectives for setting up SEBI. In terms of Section 11(1) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”), SEBI is duty bound to protect the interest of investors and to promote the development of, and to regulate the securities market by such measures as it thinks fit. Section 11(2)(g) provides that such measures may provide inter alia for prohibition on insider trading.
Further, in Deep Dive 1, we saw how Chapter VIA prescribing penalties was introduced only in 1995. This Chapter includes Section 15G, prescribing penalty in the range of 10 Lakh to 25 Crore rupees or 3X the profits made out of insider trading. It can be levied if an insider (a) deals in securities of listed companies on the basis of unpublished price sensitive information (“UPSI”) (either on his own behalf or on behalf of another); or (b) communicates UPSI to another, except as required in the ordinary course of business/under the law); or (c) counsels or procures for anyone to deal in securities of a body corporate on the basis of UPSI.
Section 12A was introduced only in 2002, prohibiting any person to conduct insider trading or to deal in securities while in possession of material/ non-public information or to communicate such information to anyone, in a manner which contravenes the provisions of the Act or the regulations thereunder.
Noticeably, the legal design of the SEBI Act vis-à-vis the prohibition of insider trading is interesting. Key concepts such as insider or UPSI have not been defined, which has allowed SEBI to shape the prohibition by way of regulations, taking into account evolving requirements.
Prohibition on Insider Trading - Regulatory Design
When the Joint Parliamentary Committee on Stock Market Scams & Matters Related Thereto in 2002 critically examined SEBI’s enforcement under the SEBI (Insider Trading) Regulations, 1992, it found that in a decade of its notification, SEBI had initiated prosecution in only one case for insider trading. It found SEBI’s track record on enforcing the prohibition of insider trading, abysmal.
Over two decades thereafter, the High Level Committee (“HLC”) under the chairmanship of NK Sondhi extensively reviewed the 1992 Regulations. It’s report formed the basis for the SEBI (Prohibition on Insider Trading) Regulations, 2015 (“PIT 2015/ PIT Regulations/ Regulations”). PIT 2015 has also been amended on various occasions including upon recommendations of the Committee on Fair Market Conduct under Dr. TK Viswanathan in 2018.
We will now better understand the prohibitions of PIT 2015 in parts, for conceptual clarity. Part A explains the prohibitions under the Regulations along with definitions which are key to understanding them. Part B explores systems that listed entities, intermediaries and fiduciaries are required to put in place. Part C explores ways in which insiders can trade compliantly.
A. Prohibitions
PIT Regulations essentially prohibit the following acts/activities vis-a-vis companies and securities that are either listed or proposed to be listed.
1. trading in securities when in possession of UPSI relating thereto;
2. communicating, providing or allowing access to UPSI by an insider; and
3. procuring or causing communication of UPSI from an insider.
Understanding what these terms, such as ‘UPSI’, ‘insider’, ‘securities’ and trading’ mean is key to decoding these prohibitions.
What is unpublished price sensitive information?
Unpublished price sensitive information has been defined to mean any information relating to a company, or its securities, directly or indirectly that is not generally available, and which upon becoming generally available is likely to materially affect the price of securities.
The illustrative list under Regulation 2(1)(n) guides that such information may include financial results, dividends, change in capital structure, mergers, demergers, acquisitions, delistings, disposals and expansion of business and such other transactions, as well as changes in key managerial personnel.
As the definition relies on information that is generally available, it is pertinent to note its definition under Regulation 2(1)(e). Generally available information (“GAI”) has been defined to mean “information that is accessible to the public on a non-discriminatory basis”. The legislative note thereto provides that information published on the website of a stock exchange is ordinarily considered GAI.
In one instance, the Securities Appellate Tribunal (“SAT”) had observed that information was generally available when the MD and chairman of a listed company had given fairly specific interviews in multiple print and digital publications, including ET, the Hindu BusinessLine, etc.[3] It had noted that the publication of stock exchange is not the only way in which an information can be considered generally available. |
Interestingly, an amendment in 2024 added the words ‘and shall not include unverified event or information reported in print or electronic media’ to the definition of GAI.
SAT has time and again emphasized the need to accurately determine the UPSI period. In one instance it had observed that UPSI could not be said to be in existence from the beginning of the finalisation of accounts internally, nor when statutory audit commenced, but only upon submission of the draft financial accounts to the management.[4] In another case it had found that the information must have some clear indication on crystalisation of the sale of an entity, for it to become UPSI.[5] |
Who is an insider?
Since the prohibitions integrally involve an insider, it is key to note that the term ‘insider’ has been defined to mean any person who is either a connected person or in possession of or having access to UPSI. A person having access to UPSI, regardless of the manner in which they come in such possession or access is considered to be an insider. The burden of proving that a person was in possession of/had access to UPSI at the time of trading has been placed on SEBI.
A natural corollary is the need to understand who then would be a connected person.
Who is a connected person?
A connected person has been defined under Regulation 2(1)(d)(i) to mean any person who, during 6 months prior to the concerned act, was associated with a company in any capacity.
Such association may have been directly or indirectly, by reason of frequent communication or by being in contractual, fiduciary or employment relationship or by being a director, officer or an employee of such company. Alternatively, he may be holding any position including a professional, or business relationship, whether temporary or permanent. So long as such connection allows such a person to have access to UPSI or where it is reasonably expected to allow such access, they would be construed as connected persons.
A list of persons who are deemed to be connected has been provided under Regulation 2(1)(d)(ii). This includes relatives of connected person under sub-clause (i); holding/ associate/ subsidiary company; intermediary specified under Section 12 or any employee/director thereof; official of stock exchange/ clearing corporation/ clearing house of corporation, etc.
Why is the definition so wide?
It includes such persons are those who have connection with a company that is expected to put him in possession of UPSI. Relatives and other categories of persons specified are also presumed to be connected persons, however, such a presumption is a deeming legal fiction and rebuttable.
The intent was to cast the net wide to include those who may not appear to be connected to the company, but are in fact in the know of its operations.
The HLC had interestingly noted that whether or not a person is a connected person will always be necessarily a mixed question of fact and law, which would need to be determined from facts and circumstances of the case. Whether the association would put him in position of accessing UPSI would also be a mixed question of fact and law.
Why securities that are listed or proposed to be listed?
The prohibitions pertain to listed and proposed to be listed securities. The term ‘securities’ has been assigned the same meaning assigned to the term under the Securities Contracts (Regulation) Act, 1956. This includes shares, scrips, bonds, derivatives, etc.
The HLC had noted that there is a need for price-discovery platform for a security, for the wrong of insider trading to be committed. Section 458 of the Companies Act, 2013 has also delegated the power to prosecute insider trading in securities of listed companies and companies which intend to get their securities listed to SEBI.
In case of companies in the process of initial public offering (“IPO”), insider trading could occur in relation to the price discovery process in book building during the IPO and there could be instances of insiders taking advantage of access to UPSI to trade with the investors in the IPO.
Accordingly, the term ‘proposed to be listed’ has also been defined. Unlisted companies which have filed offer documents or other documents, as the case may be, with SEBI, exchanges or companies in connection with listing are considered proposed to be listed. It also includes unlisted companies getting listed pursuant to mergers and acquisitions where a copy of the scheme has been filed under the Companies Act, 2013.
What is trading?
It may be noted that the term ‘trading’ has been defined in a much wider sense than was envisaged by the HLC. The HLC had noted the distinction between the terms ‘trading’ and ‘dealing’, and was of the view that the latter be excluded from the scope of the regulations so as to avoid inflicting unintended and untold prohibitions.
The HLC was of the view that encumbrances meant only as security for loans advanced, in ordinary course of lending activity is not to be suppressed by the regulation. It had also opined that including the word ‘dealing’ would have the impact of outlawing all such acts of providing security, consequently bring pledge/encumbrances on listed securities to a standstill, without any corresponding benefit to the market. Thus it had proposed defining the term ‘trading’ to mean transacting in securities whether by way of acquisition or disposal.
However, trading as defined under regulation 2(1)(l) of PIT 2015 includes ‘subscribing, redeeming, switching, buying, selling, dealing, or agreeing to subscribe, redeem, switch, buy, sell, deal in any securities’. Further, the legislative note to the definition emphasizes the intent to define the term widely and to include pledging.
The distinction between the narrower definition proposed by the HLC and the wider one in force, is even clearer from the comprehensive FAQs issued by SEBI. In Part A, SEBI has highlighted how the term has been “widely defined to include dealing in securities and intended to curb the activities based on UPSI which are strictly not buying, selling or subscribing, such as pledging, etc” Hence, trading would include creation or invocation or revocation of pledge.
Depending on the nature and contents, transactions done under securities lending and borrowing scheme may be considered trading.[6] Further, investment by an insider in AIF investing in listed securities in relation to which the insider has UPSI, may also attract the rigours of PIT 2015.[7]
Deeper Plunge into the prohibitions
In view of the above discussion, it can be said that the prohibitions essentially cast an obligation on insiders in possession of UPSI to handle the same with care. It prohibits also any person from unlawfully procuring possession of UPSI. And it prohibits anyone from trading when in possession of UPSI. This foundational understanding is key to appreciate the nuances of the prohibitions better. The nuances are elaborated below.
Nuances of the prohibition on communicating UPSI
v The prohibitions on communicating, providing or allowing access to UPSI as well as the prohibition on procuring from or causing communication thereof has been relaxed where such communication is in furtherance of (a) legitimate purposes, (b) performance of duties; and (c) discharge of legal obligations.
o Legitimate purposes are to be determined by the Board of Directors of listed companies as part of the ‘Code of Fair Disclosure and Conduct’ under Regulation 8. It includes sharing of UPSI in ordinary course of business by an insider with partners, collaborators, customers, suppliers, merchant bankers, legal advisors, insolvency professionals, etc., so long as it has not been carried out to evade the prohibitions.
§ Any person in receipt of UPSI pursuant to ‘legitimate purpose’ is considered an ‘insider’ and has to be given due notice to maintain confidentiality of UPSI.
Permitted Communication for specified transactions - It is permitted to share UPSI where the board of a listed company is of the informed opinion that such sharing is in the best interests of the company, in relation to a transaction entailing an obligation to make an open offer under the takeover regulations. It is also permitted where a transaction does not attract such obligation, provided that the UPSI is made GAI at least 2 days before it is executed.
The Supreme Court in Balram Garg v. SEBI,[8] made some observations in relation to communication of UPSI. It highlighted that the prohibition does not create a deeming fiction and noted that in absence of any material on record to show frequent communication between the parties, it cannot be presumed that UPSI had been communicated by an insider. It observed that such communication can only be proved by producing cogent materials and not deeming communication owing to alleged proximity between an insider and another person. |
Nuances of trading when in possession of UPSI
v The prohibition on any insider from trading in securities when in possession of UPSI under regulation 4(1) is an interesting one.
o If one trades in securities while in possession of UPSI, his trades are presumed to have been motivated by the knowledge and awareness of such information in possession.
o The reasons for such trades or the purpose thereof is irrelevant for determining violation of PIT 2015.
In order to bring a charge, it is only required to demonstrate that a person traded in possession of UPSI. However, once this is established, the insider can prove his innocence by demonstrating the exonerating circumstances provided in the proviso.
§ Off market inter-se transfer between insiders in possession of the same UPSI.
Such trades are required to be reported by the insiders to the company in 2 working days, for onward notification to stock exchanges by the company on basis of such reporting or upon becoming aware of such information.
§ Transactions through block deal window mechanism between persons in possession of UPSI.
For both these circumstances, the UPSI must not be procured in contravention of regulations, and both parties must have made a conscious and informed trade decision. This does not exonerate trading on basis of UPSI procured in relation to specified transactions discussed above.
§ Transactions carried out pursuant to statutory/regulatory obligation to carry out a bona fide transaction.
§ Transaction undertaken pursuant to exercise of stock option in respect of which the exercise price was pre-determined in compliance with the relevant regulations.
§ In case of non-individual insiders – if the individuals in possession of UPSI were different from those taking trading decisions, and such decision making individuals were not in possession of UPSI, when they took the decision; and appropriate and adequate arrangements were in place to ensure that the regulations were not violated and no UPSI communicated by individuals possessing it, to individuals taking trading decision, and there is no evidence of breach of such arrangements.
§ Trades executed pursuant to trading plan set up in accordance with regulation 5.
SAT has observed that the circumstances discussed above are not exhaustive and other circumstances can be demonstrated by an insider to prove innocence. In one case, SAT noted that pre-clearance had been granted and the proceeds of sale were used by the insider to make part payment to the developer for purchase of a residential flat.[9] In another, the insider had sold shares to prevent the company from being downgraded to a non-performing asset, and used the entire corpus of sale consideration towards repayment.[10] These circumstances were considered exonerating for the purposes of prohibition under Regulation 4(1). |
Further, in relation to earlier discussion on trading including pledging, in Part C of its FAQs, SEBI has clarified that the pledgor or pledgee may demonstrate that the creation/revocation of pledge or invocation thereof was bona fide and prove innocence under Regulation 4(1).
B. Systems to be set up for prevention of insider trading
At the outset, it may be noted that PIT 2015 places the obligation to put in place certain systems and procedures towards ensuring prevention of insider trading. These obligations are placed not only on listed companies, but also on intermediaries registered with SEBI and fiduciaries (“Obligated Entity(ies)”).
Internal Controls
The CEO, MD or analogous person of an Obligated Entity is required to put in place adequate and effective system of internal control to ensure compliance with the requirements under the PIT Regulations. Such internal controls require identifying and maintaining confidentiality of all UPSI and putting in place adequate restrictions on communication/procurement of UPSI.
Obligated Entities are also required to put in place restrictions on communication/procurement of UPSI, designating all employees with access to UPSI as designated persons, maintaining a list of all employees and other persons with whom UPSI is shared and ensuring confidentiality agreements are signed with, or notice is served to such employees and persons.
These controls are required to be reviewed periodically to ensure their effectiveness. Further, the audit committee of the Obligated Entities are required to review the compliance with PIT 2015 at least once in a financial year and verify the adequacy of the internal control systems.
Besides the above, listed companies are required to have board approved written policies and procedures for inquiries in case of leak or suspected leak of UPSI. They are required to initiate appropriate inquiries thereunder and inform SEBI promptly of such leaks, inquiries and their outcomes. They are required to have a whistle blower policy as well.
Structured Digital Database
The Board of Directors/head(s) of organisations of Obligated Entities (handling UPSI) are required to ensure that a Structured Digital Database (“SDD”) is maintained containing the nature of UPSI and names of all persons who have shared the information and of those with whom it has been shared, along with PAN/any other identifier authorized by law.
SDD cannot be outsourced and has to be maintained internally with adequate internal checks and balances such as time stamping and audit trails to ensure non-tampering. It has to be preserved for atleast 8 years from the completion of relevant transactions and till completion of proceedings regarding investigation or enforcement, if any.
Disclosure Requirements
PIT 2015 sets out some disclosure requirements by certain persons and their immediate relatives as well as any other person for whom they take trading decisions vis-à-vis listed companies.
KMPs, directors, promoters and members of promoter group are required to disclose their holding of securities of the company as on the date of such appointment as KMP or director or upon becoming a promoter, within 7 days therefrom.
As and when such persons or designated persons trade, such that in any calendar quarter the aggregate traded value exceeds Rs. 10 Lakh or a value specified by the company, the number of such securities acquired/disposed of, has to be disclosed to the company in 2 trading days of such transaction. The company has to notify the particulars of such trading to exchanges within 2 trading days of receipt of the disclosure or from becoming aware of it.
In one instance, SEBI had found a listed company guilty for failing to make the aforesaid disclosure to the exchange in a timely fashion. It had observed, among other things, that the beneficiary position (“Benpos”) report had revealed the transaction of an insider in possession of UPSI. SAT emphasized that the company’s obligation to notify exchanges indeed extends to sources other than the employees’ disclosures. It acknowledged that the Benpos data was limited and cannot be treated as a source of timely disclosure. It nevertheless found that the company had failed to make a timely disclosure, because it waited until the employee’s disclosure, nearly a month after SEBI brought the information to its notice.[11] |
Code of conduct for prevention of insider trading
The Board of Directors or head(s) of the organisation of every listed company and intermediary, as the case may be, are required to ensure that the CEO/MD formulates a code of conduct with their approval, to regulate, monitor and report trading by its designated persons (“DP”) and their immediate relatives, towards achieving compliance with these regulations. Such codes must adopt the minimum standards set out in Schedule B (for listed companies) and C (for intermediaries) to PIT 2015.
Listed intermediaries are required to put in place the aforesaid code of conduct at Schedule B with respect to trading in own securities and in Schedule C with respect to trading in other securities. The code has to be administered by a designated Compliance Officer.
Common features of the code of conduct for listed entities and intermediaries
The Board of Directors (“BoD”) is required to specify the DPs to be covered under the code of conduct (“CoC”) in consultation with the Compliance Officer. DPs are identified on basis of their role and function in the organisation, and the access it would provide to UPSI, in addition to seniority and designation.
PIT 2015 also deems certain persons to be DPs. These include employees of material subsidiaries of listed companies, on the basis of their functional role/access to UPSI in the organisation by their BoD. All promoters of listed companies and promoters who are individuals or investment companies for intermediaries or fiduciaries are also included for this purpose.
Further, CEO and employees up to 2 levels below the CEO of the entities and their material subsidiaries (irrespective of their functional role or ability to access UPSI) are required to be designated as DPs. Even any support staff such as IT staff or secretarial staff having access to UPSI has to be designated as DPs.
Pre-clearance requirement
DPs can trade subject to pre-clearance by the Compliance Officer (“CO”), if the value of the proposed trades is above such thresholds as stipulated by the BoD for this purpose. The CO is entitled to seek declarations to the effect that the applicant for pre-clearance is not in possession of UPSI. The CO is also required to have regard to whether any such declaration is reasonably capable of being rendered inaccurate. The CoC has to specify a reasonable timeframe of not more than 7 trading days, within which trades that have been pre-cleared have to be executed by the DP, failing which fresh pre-clearance is needed again.
Such trading by DPs of listed companies can only be done when the trading window is open.
Contra trade restriction
The CoC has to also specify a period, not less than 6 months during which the DP would be restrained from executing a contra trade. The CO is empowered to grant a relaxation from the strict application of the contra trade restriction, for reasons recorded in writing provided that such relaxation does not violate these regulations. If this restriction is violated, the profits made therefrom are liable to be disgorged for remittance to SEBI for credit to Investor Protection and Education Fund (“IPEF”) administered by SEBI under the SEBI Act.
The restriction aims to put a check on insiders from taking advantage of UPSI towards making short-term profits or short swing profits, and premise on the assumption that insiders having long term investment do not make rapid buy-sell transactions.
SEBI has noted that contra trades are applicable to a DP irrespective of the capacities in which such person holds shares in the company, be it in personal capacity or as a trustee to certain trust or executor of a will.[12]
Other common features of the Codes of Conduct for listed entities and intermediaries
Distinctive features of the codes of conduct
Trading window Restrictions under the CoC for Listed Companies
Listed entities have to put in place a notional trading window for monitored trading by DPs. It has to be closed when the CO determines that a DP or class of DPs are reasonably expected to have possession of UPSI. During such closure, DPs and their relatives are restricted from trading in such securities for which the trading window is closed.
Trading window is closed from the end of every quarter till 48 hours after the declaration of financial information. The gap between clearance of accounts by the AC and the meeting of BoD has to be as narrow as possible, preferably same day, to avoid leakage of UPSI. CO can determine when to reopen it, after taking into account factors including whether the UPSI in question has become GAI, and capable of being assimilated by the market, which in any case cannot be before 48 hours of it becoming GAI.
Trading window restrictions do not apply to inter se off market trades or block deal trades between insiders having the same UPSI per proviso to Regulation 4(1) as well as transactions as a result of exercise of stock options, and in respect of pledge of shares for a bona fide purpose such as raising of funds, subject to pre-clearance by the CO and in compliance with the relevant SEBI regulations.
Trading window restrictions also do not apply to transactions undertaken in accordance with SEBI regulations on acquisition by conversion of warrants or debentures, subscribing to rights issue, further public issue, preferential allotment or tendering of shares in a buy-back offer, open offer, delisting offer, or transactions which are undertaken through SEBI specified mechanisms.
Requirement to maintain ‘restricted list’ in CoC for intermediaries.
One distinction in this CoC is that the CO has to maintain a ‘restricted list’ of securities with prevailing UPSI which is to be used as a basis for approving/rejecting applications for pre-clearance. CO here also can seek declaration from the applicant that he/she is not in possession of UPSI and have regard to whether such declaration is reasonably capable of being rendered inaccurate. The restricted list is required to be maintained in confidentiality by the CO
Code of fair disclosure of UPSI
The BoDs of listed companies are required to ensure that the CEO formulate and publish a code of practices and procedures for fair disclosure of UPSI in addition to CoC under Schedule B to PIT 2015. This code and any amendment thereto has to be promptly intimated to the concerned exchanges. This code sets out certain principles that listed companies are required to adhere to.
The principles include prompt public disclosure of UPSI, uniform and universal dissemination of UPSI. It also stipulates designating a senior officer as chief investor relations officer to deal with the dissemination of information and disclosure of UPSI. Further, it includes providing appropriate and fair responses to queries on news reports and requests for verification of market rumours by regulatory authorities and ensuring that information shared with analysts and research personnel is not UPSI.
C. Ways in which insiders can trade compliantly
An employee of a listed company, not being a director or DP, can trade freely in securities of the company unless he has inside information/access thereto.
A general manager of a listed entity reporting to CFO had traded in the securities of the company, on the same day when the agreement to sale and escrow agreement were executed towards acquisition of an entity. The company had made public announcement regarding the acquisition the next day. SAT upheld SEBI’s order which found him guilty, based on such timing married with the presumption that his position was senior enough for him to understand that directions of the CFO towards executing a transfer of Rs. 1.51 Crore as Earnest Money Deposit, indicated acquisition process.[13] |
A DP can trade subject to receipt of pre-clearance when the trading window is open, if the value of trades is higher than stipulated for that purpose. If the value of trades is lower, he/she can trade, but may be amenable to investigation, if they do so while having access to UPSI.
Promoter, member of the promoter group, DP and/or director trade are required to report to the company, if the trade results in aggregate to Rs. 10 Lakh or such value as stipulated by the company (in a calendar quarter) as discussed earlier.
For a person like a promoter or director, who may always have access to UPSI, the HLC had put in motion an experimental concept of trading plans. Trading plans were introduced by the PIT 2015, as originally notified, and its provisions have been modified recently.
Trading Plans
The concept of trading plans was introduced in India on recommendations of the HLC. On account of stringency of prohibitions on insider trading, certain persons, particularly senior management and promoters who may perpetually be in possession of UPSI, were found incapable of trading in securities. The HLC had felt it important to reconcile the prohibitions with the need to provide a regime enabling a compliant mechanism for such persons to trade.
Formulation and approval
An insider can formulate a trading plan and present it to the CO for approval. The CO is obligated to review it to assess whether it would have any potential violation of PIT 2015 and is entitled to seek express undertakings as necessary to enable such assessment, and to approve and monitor the implementation of the trading plan. He has to also ensure that the UPSI in the insider’s possession becomes GAI before he commences execution of trades, before approving the trading plan. He has to approve/reject it within 2 days from receipt, and upon approval, it has to be notified to the exchanges on the same day.
Components of Trading Plans
Trading plan is premised on the assumption that the UPSI in possession of the insider would become GAI by the time he places the trades. Accordingly, the trading on behalf of an insider under TP can commence only 120 days after its public disclosure. The period has been kept short enough to also not adversely affect an insider. PIT 2015 also restricts multiple trading plans from operating during the same period to avoid the possibility for an insider to time the publication of UPSI.
It has to set out parameters such as (a) either the value of trade/number of securities; (b) nature of trade (buy/sell); and (c) either a specific date/ period not exceeding 5 consecutive trading days for execution. It can also include upper and lower price limit for buy and sell trade respectively.
Modalities of execution of Trading Plans
An approved trading plan ("TP") is not revocable and cannot be modified. An insider cannot also execute trades outside of it. Deviation is permitted only in cases of permanent incapacity, bankruptcy or operation of law. Further, while it is not mandatory to set a price limit in the TP (if one is okay with market price fluctuations), if price limits are set, the trade cannot be executed if the execution price of the security is outside the set price limit.
Commencement of implementation of the trading plan is not possible until the UPSI becomes GAI. If a TP is not implemented either fully or in part, the insider is required to intimate the same to the CO within 2 days of the end of its tenure with reasons thereof, and supporting documents.
The CO has to place such information with its recommendations on acceptance/rejection of submissions of the insider before the audit committee for latter’s determination of whether the same was bona fide or not. The audit committee’s decision has to be notified to the exchanges by the CO. In case the AC does not accept insider’s submission, the CO has to take action per the CoC.
***
[1] Report of the High Level Committee under chairmanship of N.K. Sodhi (2013).
[2] Ibid.
[3] Future Corporate Resources Pvt. Ltd. & Ors. v. SEBI, SAT Appeal No. 81 of 2021 decided on December 20, 2023.
[4] Prakash C Kanugo v. SEBI, SAT Appeal No. 709 of 2022 decided on 06.11.2023
[5] Pia Johnson v. SEBI, SAT Appeal No. 59 of 2020 decided on April 8, 2022.
[6] SEBI’s informal guidance issued to HDFC Securities Ltd., issued on October 5, 2018.
[7] SEBI’s informal guidance issued to Yes Bank Ltd., issued on March 16, 2022.
[8] 2022 9 SCC 425.
[9] Shreehas P Tambe v. SEBI, SAT Appeal No. 491 of 2021, decided on April 26, 2023.
[10] Rajeev Sheth v. SEBI, SAT Appeal No. 526 of 2021, decided on April 19, 2022.
[11] Avenue Supermarts Limited v. SEBI, SAT Appeal No. 298 of 2020, decided on January 1, 2022.
[12] SEBI’s informal guidance issued to Arvind Limited on November 25, 2019.
[13] Shashikant Dalmia v. SEBI, SAT Appeal No. 411 OF 2023, decided on MAY 22, 2024.
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