Amendment of Guidance Note on
SEBI (Prohibition of Insider Trading) Regulations, 2015 vide press release no. PR
No.: 17/2019 dated 22.07.2019
Overview:
·
SEBI has
issued Guidance Note on SEBI (Prohibition of Insider Trading) Regulations, 2015
(“PIT Regulations”) on August 24, 2015 under regulation 11 of the PIT
Regulations.
·
Reason to issue: Providing guidance to the market to remove certain difficulties in
the interpretation or application of the provisions of the Regulations.
·
The Guidance
Note was subsequently amended on February 17, 2016.
·
Consequent
to amendment to the PIT Regulations after approval of the report submitted by
Committee on Fair Market Conduct, various clarifications have been sought by
Market Participants on the amendments.
·
The Guidance
Note has been revised on July 5, 2019 to provide clarity on:
(i)
Requirement
of Maintaining Structured Digital Database and
(ii)
Scope of
“Investment Company”.
An
Overview of Guidance Note on SEBI (Prohibition of Insider Trading) Regulations, 2015.
SEBI has received many queries
from the
market participants seeking
guidance on the interpretation of some provisions of the Regulations.
Under regulation 11
of the Regulations,
SEBI may provide
guidance to the
market to remove
any difficulties in
the interpretation or
application of the
provisions of these
regulations.
The queries
received and the
guidance sought is
detailed below for
the guidance of market
participants:-
A. Guidance with respect to ESOPS:
1. Does
the contra trade
restriction (for a
period not less
than six months)
under clause 10 of Schedule B of
the Regulations also apply to the exercise of ESOPs and the sale of shares so
acquired?
Guidance: Exercise of ESOPs
shall not be
considered to be
“trading” except for the purposes of Chapter
III of the
Regulations. However, other
provisions of the Regulations shall apply to the sale of
shares so acquired.
(i)
If a
designated person has
sold/ purchased shares,
he can subscribe
and exercise ESOPs at any time after such sale/purchase,
without attracting contra trade restrictions.
(ii)
Where a
designated person acquires
shares under an
ESOP and subsequently
sells/pledges those shares, such sale shall not be considered as contra
trade, with respect to exercise of ESOPs.
(iii)
Where a
designated person purchases
some shares (say
on August 01,
2015), acquires shares
later under an
ESOP (say on
September 01, 2015)
and subsequently sells/pledges (say on October 01, 2015)
shares so acquired under ESOP, the sale will not be a contra trade but will be
subject other provisions of the Regulations, however, he will not be able to
sell the shares
purchased on August
01, 2015 during
the period of
six months from August 01,
2015.
(iv)
Where a
designated person sells
shares (say on
August 01, 2015),
acquires shares later under an ESOP (say on September 01,
2015) the acquisition under ESOP shall not be
a contra trade.
Further, he can
sell/pledge shares so
acquired at anytime thereafter without
attracting contra trade
restrictions. He, however,
will not be
able to purchase
further shares during
the period of
six months from
August 01, 2015 when he had sold
shares.
B. Guidance with respect to CONTRA TRADE:
1.
In case
an employee or
a director enters
into Future &
Option contract of
Near/Mid/Far month contract, on expiry will it tantamount to contra
trade? If the scrip of the company is part of any Index, does the exposure to
that index of the employee or director also needs to be reported?
Guidance: Any derivative contract that is
cash settled on expiry shall be considered to be a contra trade. Trading in
index futures or such other derivatives where the scrip is part of such
derivatives, need not be reported
2.
Whether contra trade is allowed
within the duration of the trading plan?
Guidance: Any trading
opted by a
person under Trading
Plan can be
done only to
the extent and in the manner
disclosed in the plan, save and except for pledging of securities (Refer
question 6).
3.
Whether the restriction on
execution of contra trade in securities is applicable in case of buy back
offers, open offers, rights issues FPOs etc by listed companies?
Guidance: Buy back offers, open offers,
rights issues, FPOs, bonus, exit offers etc. of a listed company are available
to designated persons also, and restriction of ‘contra-trade’ shall not apply
in respect of such matters.
4.
Whether restriction on execution
of contra trade is applicable only to designated persons of a listed company or
whether it would also apply to the designated employees of market
intermediaries and other
persons who are required to handle UPSI
in the course of business operations?
Guidance: The code prescribed by the
Regulations is same for listed companies, market intermediaries and
other persons who
are required to
handle UPSI in
the course of
business operations. Therefore,
restrictions with regard
to contra trade
forming part of
clause 10 of code of conduct shall apply to all according to the
Regulations.
C.
Guidance
with respect to PLEDGE
PLEDGE:
1. (a) Whether SEBI's intent is
to prohibit creation of pledge or invocation of
pledge for enforcement of
security while in possession of UPSI?
(b) Whether creation of pledge or
invocation of pledge is allowed when trading
window is closed?
Guidance: Yes. However, the pledgor or
pledgee may demonstrate that the
pledge or invocation of pledge was bona fide and prove their
innocence under proviso to sub-regulation (1) of regulation 4 of the
Regulations.
2. What should be the value of
the pledge / revoke transaction for the purpose of
disclosure? Is it the market
value on date of the pledge / revoke transaction or is it the value at which the
transaction has been carried out between the pledgor and pledgee?
For instance, if the pledgor has
availed a loan of Rs 10 Lacs against which he has
pledged shares worth Rs 15 Lacs,
would the transaction value be Rs 10 Lacs or Rs 15
Lacs.
Guidance: For the purpose of calculation of
threshold for disclosures relating to pledge under Chapter III of the
Regulations, the market value on the date of pledge/revoke transaction should be
considered. In the above illustration, the value of transaction would be considered
as fifteen lakh rupees.
Guidance with respect MISCELLANEOUS
queries:
1.
Who will be approving authority
for trades done by the Compliance Officer or his immediate relatives, as
Insiders?
Guidance: The board of directors of the
company shall be the approving authority in such cases and may stipulate such
procedures as are deemed necessary to ensure compliance with these regulations.
2.
Whether separate code of conduct
can be adopted for listed company and each of intermediaries in a group?
Guidance: In case of a group, separate
code may be adopted for listed company and each of intermediaries, as applicable
to the concerned entity.
3.
Whether Chief investor relations
officer will also be responsible along with compliance officer for not
disseminating information or non-disclosure of UPSI?
Guidance: Regulation 2 (c) clearly
provides the functions and responsibilities of the compliance officer. Specific
responsibilities to deal with dissemination of information and disclosure of
unpublished price sensitive information are given to Chief Investor Relations
Officer (CIRO) under clause 3 of Schedule A.
It is company’s discretion to designate two separate persons as
CIRO and Compliance Officer, respectively for fulfilling specified
responsibilities. In cases where both CIRO and CO have been designated for
overlapping functions, they shall be jointly and severally responsible.
4.
If a spouse is financially
independent and does not consult an insider while taking trading decisions, is
that spouse exempted from the definition of ‘immediate relative’?
Guidance: A spouse is presumed to be an
‘immediate relative’, unless rebutted so.
5.
Whether the requirement to
maintain Structured Digital Database under Regulation 3(5) is applicable on
intermediaries and fiduciaries?
Guidance : The requirement to maintain
structured digital database under Regulation 3(5), containing the names of such
persons or entities with whom UPSI is shared, is applicable to listed companies,
and intermediaries and fiduciaries who handle UPSI of a listed company in the
course of business operations.
Guidance with respect Investment
Company
1. What
is the scope of the term ‘investment company’ as mentioned in Regulation 9(4)
(iii)?
Guidance : The regulation 9 (4)
(iii) intends to include only those non-individual corporate promoters of
intermediaries or fiduciaries as designated person, whose main object or
principal activity, is investing in securities of other companies. For e.g. if
the promoter of a broking entity is a Bank, then such promoter shall not be
specified as designated person to be covered by the code of conduct of the
intermediary. However, if the promoter of a broking entity is an investment
company which holds investments in various companies, then such an entity shall
be specified as designated person to be covered by the code of conduct of the
intermediary.].
Amended guidance note is
available at:
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