Amendment to the defense provided under Regulation 4(1)(i) of the SEBI (Prohibition Of Insider Trading) Regulations, 2015

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Jun 27, 2019

Amendment to the defense provided under Regulation 4(1)(i) of the SEBI (Prohibition Of Insider Trading) Regulations, 2015

Regulation 4(1) of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”) prohibits any insider from trading in securities that are listed or proposed to be listed on a stock exchange while in possession of unpublished price sensitive information (“UPSI”).

Prior to the amendment to the proviso to Regulation 4(1) of the PIT Regulations, which took effect on April 01, 2019, the first proviso to Regulation 4(1) provided a defence in respect of an off-market inter se transaction between two promoters who were in possession of the same UPSI. The Committee on Fair Market Conduct constituted in 2017 under the chairmanship of Mr. T.K. Vishwanathan (“Vishwanathan Committee”) submitted in its report that such defence be extended to all insiders with parity of information who wish to carry out such inter se trades.

Pursuant to the amendment to the PIT Regulations, the scope of this defence under Regulation 4(1) has now been widened to include off-market inter se transactions between insiders (which includes any connected person or any person in possession of or having access to UPSI) in possession of the same UPSI. However, such defence would not be available if the UPSI was disclosed to the insiders pursuant to Regulation 3(3) which permits the board of directors of the listed company to communicate UPSI in the context of certain transactions if such disclosure is in the best interests of the company. The onus will be on the relevant insiders to demonstrate that they were in possession of the same UPSI, in order to benefit from this defence.

While the reporting of pre-cleared trades by insiders is governed by code of conduct formulated by the respective company, off market trades undertaken by insiders pursuant to the aforementioned regulation would have to be mandatorily reported by the insiders to the company within two working days of such trade having been made. The company is then required to notify the particulars of such trades to the stock exchange on which the securities are listed within two trading days from receipt of the disclosure or from becoming aware of such information.

Authors:
Medha Marathe, Partner
Sanskriti Singh, Associate

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