[The following guest post is contributed by Vinita Nair and Aman Nijhawan, Vinod
Kothari & Company, Practising Company Secretaries]
Kothari & Company, Practising Company Secretaries]
The Securities and Exchange
Board of India (‘SEBI’) rolled out the SEBI
(Prohibition of Insider Trading) Regulations, 2015 (the ‘Regulations,
2015’) on January 15, 2015 which will come into force on the 120th date of its
publication in Official Gazette i.e. on May 15, 2015. The Regulations, 2015 are
based on the report
of a High Level Committee set up under the Chairmanship of Mr. N K Sodhi, former
Chief Justice of High Courts of Kerala and Karnataka and former Presiding
Officer of the Securities Appellate Tribunal on December 7, 2013.
Board of India (‘SEBI’) rolled out the SEBI
(Prohibition of Insider Trading) Regulations, 2015 (the ‘Regulations,
2015’) on January 15, 2015 which will come into force on the 120th date of its
publication in Official Gazette i.e. on May 15, 2015. The Regulations, 2015 are
based on the report
of a High Level Committee set up under the Chairmanship of Mr. N K Sodhi, former
Chief Justice of High Courts of Kerala and Karnataka and former Presiding
Officer of the Securities Appellate Tribunal on December 7, 2013.
Insider trading refers to trading
in securities of a company by its directors, employees or other insiders based
on “unpublished price sensitive information” (‘UPSI’). Such dealings by insiders
erode the investors’ confidence in the integrity of the management and are
unhealthy for the capital markets. The Regulations, 2015 inter-alia mandate
every listed company and every market intermediary registered with SEBI to formulate
a Code of Conduct (‘CoC’) [Regulation 9]
to regulate, monitor and report trading by its employees and other connected
persons. Additionally, every other person who is required to handle UPSI in the
course of business operations is also required to frame a CoC.
in securities of a company by its directors, employees or other insiders based
on “unpublished price sensitive information” (‘UPSI’). Such dealings by insiders
erode the investors’ confidence in the integrity of the management and are
unhealthy for the capital markets. The Regulations, 2015 inter-alia mandate
every listed company and every market intermediary registered with SEBI to formulate
a Code of Conduct (‘CoC’) [Regulation 9]
to regulate, monitor and report trading by its employees and other connected
persons. Additionally, every other person who is required to handle UPSI in the
course of business operations is also required to frame a CoC.
The Regulations, 2015 also cast
responsibility on the Board of listed companies to ensure timely, uniform and
adequate disclosure of UPSI to the investor community by the company to enable
them to take informed investment decisions with regard to the company’s
securities. In view of the same, every company, whose securities are listed on
a stock exchange, is required to formulate a Code of Practices and Procedures
for Fair Disclosure (‘CoFD’) [Regulation
8] for fair disclosure of events
and occurrences that could impact price discovery in the market for its
securities.
responsibility on the Board of listed companies to ensure timely, uniform and
adequate disclosure of UPSI to the investor community by the company to enable
them to take informed investment decisions with regard to the company’s
securities. In view of the same, every company, whose securities are listed on
a stock exchange, is required to formulate a Code of Practices and Procedures
for Fair Disclosure (‘CoFD’) [Regulation
8] for fair disclosure of events
and occurrences that could impact price discovery in the market for its
securities.
The Recent Circular
SEBI
vide CIR/ISD/01/2015 dated May 11, 2015 issued a circular
(‘Circular’) thereby specifying the
formats in which the initial and continuous disclosures, as stipulated under
Regulation 7 of the Regulations, 2015 shall be made. In addition to requiring
the Stock Exchanges to have systems in place for ensuring implementation of the
Circular, it requires the listed companies to confirm to the Stock Exchanges
that:
vide CIR/ISD/01/2015 dated May 11, 2015 issued a circular
(‘Circular’) thereby specifying the
formats in which the initial and continuous disclosures, as stipulated under
Regulation 7 of the Regulations, 2015 shall be made. In addition to requiring
the Stock Exchanges to have systems in place for ensuring implementation of the
Circular, it requires the listed companies to confirm to the Stock Exchanges
that:
a) the company has formulated CoFD
and published the same on its official website. Regulation 8 (2) of
Regulations, 2015 mandates prompt intimation to the Stock Exchange of every
amendment made in CoFD;
and published the same on its official website. Regulation 8 (2) of
Regulations, 2015 mandates prompt intimation to the Stock Exchange of every
amendment made in CoFD;
b) the company has formulated CoC;
c) the company is dealing with only
such market intermediary / every other person, who is required to handle UPSI,
who have formulated a code of conduct as per the requirements of the
Regulations.
such market intermediary / every other person, who is required to handle UPSI,
who have formulated a code of conduct as per the requirements of the
Regulations.
Meaning of Market Intermediary and
Other Person
Other Person
The
definition of insider under the Regulations, 2015 includes a connected person,
which inter alia includes a market intermediary, and any person who is
possession or having access to UPSI.
definition of insider under the Regulations, 2015 includes a connected person,
which inter alia includes a market intermediary, and any person who is
possession or having access to UPSI.
In
accordance with Regulation 2(g) of Securities
and Exchange Board of India (Intermediaries) Regulations, 2008, “intermediary”
means a person mentioned in clauses (b) and (ba) of sub-section (2) of section
11 and sub-section (1) and (1A) of section 12 of the Act and includes an asset
management company in relation to the Securities and Exchange Board of India
(Mutual Funds) Regulations, 1996, a clearing member of a clearing corporation
or clearing house and a trading member of a derivative segment of a stock exchange but does not include
foreign institutional investor, foreign venture capital investor, mutual fund,
collective investment scheme and venture capital fund.
accordance with Regulation 2(g) of Securities
and Exchange Board of India (Intermediaries) Regulations, 2008, “intermediary”
means a person mentioned in clauses (b) and (ba) of sub-section (2) of section
11 and sub-section (1) and (1A) of section 12 of the Act and includes an asset
management company in relation to the Securities and Exchange Board of India
(Mutual Funds) Regulations, 1996, a clearing member of a clearing corporation
or clearing house and a trading member of a derivative segment of a stock exchange but does not include
foreign institutional investor, foreign venture capital investor, mutual fund,
collective investment scheme and venture capital fund.
Under
Section 11(2) (b) and 11(2)(ba) of the SEBI
Act, 1992, intermediary includes stock brokers, sub-brokers, share transfer
agents, bankers to an issue, trustees of trust deeds, registrars to an issue,
merchant bankers, underwriters, portfolio managers, investment advisers,
depositories, participants, custodians of securities, foreign institutional
investors, credit rating agencies and such other intermediaries who may be
associated with securities markets in any manner.
Section 11(2) (b) and 11(2)(ba) of the SEBI
Act, 1992, intermediary includes stock brokers, sub-brokers, share transfer
agents, bankers to an issue, trustees of trust deeds, registrars to an issue,
merchant bankers, underwriters, portfolio managers, investment advisers,
depositories, participants, custodians of securities, foreign institutional
investors, credit rating agencies and such other intermediaries who may be
associated with securities markets in any manner.
However,
there is no ready definition of other persons which the company could refer to
ascertain whether the requirement of the Circular is being met. They are to be
identified by the company considering the extent of dealings with them by the
company and their ability to access UPSI. These may include:
there is no ready definition of other persons which the company could refer to
ascertain whether the requirement of the Circular is being met. They are to be
identified by the company considering the extent of dealings with them by the
company and their ability to access UPSI. These may include:
a) employees of holding company
(whether immediate or ultimate) who by virtue of his/her position approves key decision/ functions of the company
or has an access to UPSI relating to the company;
(whether immediate or ultimate) who by virtue of his/her position approves key decision/ functions of the company
or has an access to UPSI relating to the company;
b) any strategic shareholder whose
affirmative vote or sanction is pre-requisite for key actions of the company;
affirmative vote or sanction is pre-requisite for key actions of the company;
c) professionals,
consultants, advocates, auditors whom the company may consult prior to deciding
the corporate action or occurrence or who play an active role in formulating
systems/ processes etc;
consultants, advocates, auditors whom the company may consult prior to deciding
the corporate action or occurrence or who play an active role in formulating
systems/ processes etc;
Suggested Action points to comply
with aforesaid requirement
with aforesaid requirement
The
Compliance Officer shall ensure the following:
Compliance Officer shall ensure the following:
1. Identify such market intermediary and every other person who is
required to handle UPSI of the company;
required to handle UPSI of the company;
2. Send an email to each of such identified person enclosing a suggested
format of confirmation that such identified person has formulated CoC as per
the Regulation, 2015;
format of confirmation that such identified person has formulated CoC as per
the Regulation, 2015;
3. Allow such identified person time frame of 14 days from the
date of email to confirm that they have formulated the CoC;
date of email to confirm that they have formulated the CoC;
4. In case of a lack of response, send a reminder mail after the
expiry of 7 days from the date of original email; and
expiry of 7 days from the date of original email; and
5. If no confirmation is received after the expiry of 21 days from
the date of original email, the Company shall stop sharing UPSI with such
identified person.
the date of original email, the Company shall stop sharing UPSI with such
identified person.
Conclusion
SEBI
intends to cover any person in possession or reasonably expected to be in
possession of UPSI to formulate a CoC to ensure that there is no price
discovery of securities and trading before an UPSI is made generally available.
The Compliance Officer as well as the market intermediaries and other persons
who regularly participate in the affairs of the Company, have to ensure that
the CoC is in place and is duly implemented.
intends to cover any person in possession or reasonably expected to be in
possession of UPSI to formulate a CoC to ensure that there is no price
discovery of securities and trading before an UPSI is made generally available.
The Compliance Officer as well as the market intermediaries and other persons
who regularly participate in the affairs of the Company, have to ensure that
the CoC is in place and is duly implemented.
– Vinita Nair &
Aman Nijhawan
Aman Nijhawan