SEBI (PIT) Regulations, 2015 www.bsestarmf.in 1
Certain vulnerability in erstwhile Insider Regulation, 1992 in spite of substantial amendments in year 2002 and 2008. Resulted into promulgation of SEBI PIT Regulations, 2015. Salient features of the Regulations: Expanded definition of Securities to include debt securities as well as proposed for listing. insider - Anyone who is in possession of or having access to unpublished price sensitive information, regardless of mode of knowledge. Expansion in the definition of Connected person - any person who is or has during the six months prior to the concerned act been associated with a company, directly or indirectly, in any capacity. Principle based definition of UPSI along with illustrative examples.
Unpublished price sensitive information may be communicated in certain limited situations. Certain specific defenses available for trading when in possession of unpublished price sensitive information - Regulation 4 of the Regulations. Appointment of Compliance Officer, who need not be company secretary of the company. Provision for Trading Plan. Adoption of Code of Conduct and Code of Practice & Procedure for fair disclosure of UPSI. Case Studies: Gradual Progression Rakesh Agarwal - SAT - Year 2004 Penalty should not be levied in case the Insider trades based on UPSI but in the interest of the company
SEBI decision in the matter of Reliance Industries - Year 2004 By virtue of being on the Board of L & T and as RIL and L &T fall within the same management, Ambanis were Insider. Allegations of Insider Trading not sustainable as Insiders had not received any UPSI. DSQ Holdings Ltd - SAT - Year 2004 Information with regards to Rights Issue before public announcement is UPSI and as DSQ Holding is a group company, charges of Insider Trading is proper. Samir Arora - SAT - Year 2005 Pending before Supreme Court Fund Manager fall within the definition of Insider Expansion of the term Insider. Absence to show how the Fund Manager acquired UPSI resulted into setting aside SEBI Order.
Dr. Anjali Beke - SAT - Year 2006 An entity need not be connected or to be deemed to connected to the company to fall within the term Insider Expansion of the scope of Insider. Rajiv G Gandhi - SAT - Year 2008 Burden of Proof is upon the Insider to prove that it had traded not on the basis of UPSI. Deviation from Samir Arora v. SEBI, SAT - SAT - Year 2005 (Change from negative obligation to positive obligation on Insider). Sadhana Nabera - SAT - Year 2008 On account of nature of role performed by Auditor, Auditor do not access to UPSI and thus, Auditor will not be a Insider Resulted into amendment to SEBI PTI Regulations to cover various categories of persons. Dilip Pendse - SAT - Year 2009 Trades done during the period where the Insider did not had access to UPSI cannot be faulted.
Gujarat NRE Mineral Resources Ltd - SAT - Year 2011 SAT held that the information by a listed investment company to dispose a part of its investment does not tantamount to UPSI. Transactions executed in normal course of business shall not have any material impact on the price of securities and thus, cannot be considered as UPSI. Chandrakala - Year 2012 On account of Promoter relinquishing the interest in the company and as no material produced to show that Chandrakala had access to UPSI, Order passed by SEBI set aside. V.K. Kaul & Bala Kaul - SAT - Year 2012 V.K. Kaul and Bala Kaul are connected to the company and had access to UPSI. Therefore, charges of Insider Trading upheld by SAT. Manoj Gaur - SAT - Year 2012 Violation of Model Code which prescribed no trading during the closure of trading window.
Trading Plan: Insider to formulate the Trading Plan and get it approved from the compliance officer. Post approval, disclosure of trading plan through stock exchange to the public. Not entail trading in securities for market abuse. Plan shall set out either the value of trades to be effected to 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. Trading cannot be commenced before the 6 months from the public disclosure of Trading Plan or for the period between 20 th 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. Should not entail overlap of any period for which another trading plan is already in existence;
The trading plan once approved shall be irrevocable and the insider shall mandatorily have to implement the plan, without any deviation. Compliance Officer to approve and monitor the implementation. Trading Plan: Issues involved Construction of Code of Conduct (Schedule B) and Code of Practice and Procedure by Compliance Officer. Public disclosure of Trading Plan defeats the objective of investment. May be subject to abuse by other participants. Irrevocable nature of Trading Plan vis-a-vis market dynamics. Approval of Trading Plan r/w requirement of execution of the pre-cleared trades Non-execution of contra trade within 6 months. Power to grant relaxation r/w irrevocable nature of Trading Plan.
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