SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS 2015

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Shailashri Bhaskar

Company Secretary

Objective – Strengthening Trust and Governance

• Can I trade?

How to handle confidential information??

Has the entry been made in the SDD?

Has there been a contra trade?

Has someone traded when the window is closed?

How can I protect myself and my company ?

A PROHIBITORY REGULATION

• Insider trading regulations are prohibitory in nature
• In order to determine whether any one has indulged in insider trading, the following are considered :
• Whether an insider
• Whether connected /deemed to be connected
• In possession of price sensitive information
• Whether the same was unpublished or was generally available to the public
• Whether the person dealt in the shares on the basis of / while being in possession of unpublished price sensitive information

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Prohibition of Insider Trading Regulations

Connected (includes �Deemed to be Connected )

In possession of or having access to Unpublished Price Sensitive information (UPSI)

OR

ARE YOU A CONNECTED PERSON

• Any person who is or has during the six months prior to the act of insider trading been
• Associated with a company directly or indirectly in any capacity
• By reason of frequent communication with its officers
• Or contractual, fiduciary or by way of employment
• Or a director or an officer or an employee of the company
• Or holds a professional or business relationship with the company whether temporary or permanent
• And this allows such person direct or indirect access to
• Unpublished price sensitive information
• Is reasonably expected to have such access.
• PALRED TECHNOLOGIES / DEEP INDUSTRIES – FACEBOOK CONTACT

DEEMED TO BE CONNECTED

• Relative of the Connected Person
• A spouse of a person – Mannapuram Finance – spouse not considered to be financially independent –
• FAQ also addresses in the same manner
• Holding, Associate or Subsidiary Company
• a firm or its partner or its employee in which a connected person is also a partner

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• a concern, firm, trust, Hindu undivided family, company or association of persons wherein a director of a company or his relative or banker of the company, has more than 10% of holding or interest
• a person sharing household or residence with a connected person – SAT Order and SEBI Orders – related to pattern of trading
• Up to the connected person to prove he is not connected - rebuttable

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WHO IS AN INSIDER

• A connected person
• Or a person who is in possession or having access to unpublished price sensitive information
• The regulations further state that it is the intention of the regulation to bring under its ambit any person who has access to unpublished price sensitive information.
• Onus of showing that the person had access to UPSI is on the regulator while the person on whom the charge is levelled has to prove that he did not have access to UPSI or his trading was covered by exonerating circumstances

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TRADING

• Given a more inclusive definition to include dealing
• Means buying, selling, subscribing and dealing or agreeing to buy, sell, subscribe or deal in a security and includes pledging.

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�WHAT IS PRICE SENSITIVE INFORMATION�

Any information which has the Potential to materially affect the share price

Generally Available??

Unpublished – �Not generally available

What is Generally Available

• Generally Available
• Information available to the public on a non-discretionary basis
• Includes information published on the website of the company
• Should emanate from the company
• Discussion from the Justice Sodhi Report
• Therefore, what is unpublished price sensitive information??
• Sales Figures before the actual results are published – Sobha Limited
• General Buzz in the Office regarding financial results – Nucleus Software

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• Are these instances of UPSI-
• Annual Sales Conference in which general statements are made;
• Congratulatory emails on the excellent achievement of sales;
• Email by business heads;
• This leads us to the question when does UPSI get germinated?
• When the information starts taking shape of a price-sensitive information i.e. where the probability of going ahead with the information/concerned event is higher than not going ahead and such information is likely to “materially” affect the prices of the securities of the company when published.

Know the Compliance Officer

• Normally be the Company Secretary
• Will handle all the queries and doubts on the Code of Conduct
• Will grant pre-clearance or reject the pre-clearance before trading
• Also responsible for closure of trading window
• Takes Corrective Action

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COMPLIANCE OFFICER

• Any senior officer designated as such
• Reporting to the Board of directors
• Financially literate – ability to read and understand basic financial statements
• Capable of appreciating the requirements of compliance
• Responsible for compliance, maintenance of records and adherence to the rules for preservation of unpublished price sensitive information, monitoring of trades and implementation of the codes specified
• Under the overall supervision of the board of directors of a listed company or the head of an organisation, as the case may be.

THE REGULATIONS

• What is Prohibited
• X Trading w x Trading while being in possession of

UPSI

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X Communication of UPSI

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X Procuring of UPSI

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Quantity

Intentions

Recklessness

Negligence

• Illegal regardless of Motive
• No exception for hardship
• No requisite of Mens-rea (guilty mind)

THE REGULATIONS

• Do not communicate, provide or allow access to
• Unpublished price sensitive information (could also mean to include potential price sensitive information)
• To any person
• Or to any other insider
• Unless such communication / access is required for the performance of duties or furtherance of legal oligations -
• In short to share only “on need to know” basis
• Piramals in the Abbot slump sale matter
• Exemptions available

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• Do not procure or make an insider communicate
• Any unpublished price sensitive information
• Unless it is required for the furtherance of the performance of one’s duties or discharge of legal obligations
• Person who unlawfully procures unpublished price sensitive information shall also be indulging in an illegal act
• EXAMPLE – RAJARATNAM FROM RAJAT GUPTA

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• Do not Trade while being in possession of UPSI
• Tara Jewels
• Father and his two daughters ( MD and senior vice presidents)
• Divis Labs
• Employee of the Company

• To formulate a policy for determining what is a legitimate purpose – should be a part of code of conduct
• This shall determine what shall be the legitimate purpose for which UPSI can be shared by an insider with partners, collaborators, merchant bankers, auditors, solicitors, consultants etc.
• To ensure that a structured digital data base of persons with whom UPSI is shared is maintained
• To be maintained with checks and balances to know who has accessed the same and avoid tampering
• Entry to be made once the UPSI has germinated

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Structural Digital Database

• Structured digital data base
• Nature of the UPSI
• Name of person generating it
• Names of persons shared with
• PAN Number
• To be maintained in-house
• Time stamping and audit trails
• Prevent tampering of database
• Preserved for 8 years

Structural Digital Database

• Who is Responsible to make an entry
• The Board is ultimately responsible for the maintenance
• Although Compliance Officer, practically not possible
• When is the entry to be made
• When UPSI is shared
• Within 2 calendar days for information which is not emanating from the Company
• To be made when the UPSI for which entry originally made changes in nature?

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ADOPTION OF TRADING PLAN

• An insider shall be entitled to prepare a trading plan
• Get it approved by the compliance officer
• And the same can be sent to the stock exchange for public disclosure
• Trades can thereafter be done only as per the plan
• Revocable only in case of bankruptcy or permanent incapacity or operation of law
• Cannot trade for a period of 120 calendar days from the date of disclosure of the plan

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• Shall not overlap for a period already given
• Give the value or the number of shares, nature of trade, specific date or time period not exceeding a period of 5 consecutive trading days; price limit – upper price limit for buy trade and lower price limit for sell trade subject to a range specified in the regulation
• Shall not be for market abuse

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Code of Conduct

• Adopt a code of conduct in line with the model code of conduct – Falcon Tyres – applies to all designated persons
• Remember that a Designated Person is always an Insider and a connected person, but an Insider need not be a designated person.

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DP

Connected Person

Insider

Who is a Designated Person

• The Board of Directors in consultation with the Compliance Officer shall identify the designated persons:
• This shall be on the basis of their role and function which should provide them access to UPSI
• SAT Order in the matter of ITC / Wipro
• Employees of such listed company, intermediary or fiduciary designated on the basis of their functional role or access to unpublished price sensitive information in the organization by their board of directors or analogous body;
• Employees of material subsidiaries of such listed companies designated on the basis of their functional role or access to unpublished price sensitive information in the organization by their board of directors;

• All promoters of listed companies and promoters who are individuals or investment companies for intermediaries or fiduciaries;
• Chief Executive Officer and employees up to two levels below Chief Executive Officer of such listed company, intermediary, fiduciary and its material subsidiaries irrespective of their functional role in the company or ability to have access to unpublished price sensitive information;
• Any support staff of listed company, intermediary or fiduciary such as IT staff or secretarial staff who have access to unpublished price sensitive information.
• Will a driver of the Managing Director be a designated person

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• Ensure trading window is closed while handling price sensitive matters.
• What happens to persons who are perpetually in possession of UPSI

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Trading Window

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• Do not trade when the Window is closed
• When is the window closed?
• Exceptions are
• Inter-se amongst the promoters
• Bulk Deal
• Exercise of ESOPs only
• Creation of Pledge with pre clearance
• Participation in Open Offers, Rights Issues

Delisting, FPOs, Pref Allotment

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Pre-Clearance of Trade

• Pre-clearance for trades – above a certain threshold
• This applies to trades of your spouse and other immediate relatives who are financially dependent / take decisions regarding investment from you ( Mannapuram Finance)
• Valid for 7 trading days
• Report after executing the order

• DO NOT ENTER INTO OPPOSITE TRANSACTIONS FOR A PERIOD OF 6 MONTHS
• Compliance Officer can give an exemption if there are strong reasons supporting the same
• Only exemption available is sale of shares pursuant to exercise of Options under an ESOP scheme

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• To adhere to company’s internal code while speaking to press
• Investor Meets – What are the precautions to be taken?
• Can projections be shared
• Ensure strict compliance with Chinese wall procedures

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Summing Up

Legitimate Purposes

Need to know

Control mechanisms viz codes.

INSTITUTIONAL MECHANISM

• Responsible to put in place adequate and effective system of internal controls to include
• All employees who have access of UPSI are designated as designated persons
• All UPSI shall be identified and confidentiality of the same shall be maintained
• Restriction shall be placed on communication or procurement of UPSI
• Confidentiality agreements to be entered into with persons with whom UPSI is shared

• Audit committee to review the compliance of the pit regulations atleast once a year and whether internal controls procedure is being effectively followed
• Listed company to have a written policy to enquire into a leakage of UPSI or suspected leakage of upsi; approved by the board; initiate enquiries and report to the board
• Whistle blower mechanism for the employees so as to enable them to report possible leakages. Model code of conduct to also provide for non-victimisation of whistle blowers

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FOR HOW LOND SHOUD THE EMPLOYEE COMPLY

• Till the person is in employment
• In case of resignation or retirement, for six months after your disassociation with the company

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• THANK YOU