Oct 01, 2016

Informal Guidance on Insider Trading in case of HDFC Bank Limited

SEBI has issued an interpretive letter under the IG Scheme to HDFC Bank Limited (‘HDFC’) on July 25, 2016 on whether a trade by a portfolio manager (‘PM’) under a discretionary portfolio management scheme can amount to insider trading under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘IT Regulations’), due to possession of unpublished price sensitive information (‘UPSI’) by a client. Under a discretionary portfolio management concept, a PM makes investments on behalf of a client, including the terms of such investments, and such decision-making of the PM is not influenced by the client. In this regard, SEBI has clarified the following:i.  Regulation 4(1) of the IT Regulations states that no insider “shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information.” Further, as per the explanatory notes to Regulation 4 of the IT Regulations, when a person trades in securities when in possession of UPSI, his trades are presumed to be motivated by knowledge and awareness of the UPSI.ii.  Accordingly: (a) when considering any dealing in securities, it is not relevant whether such dealing was direct or indirect; (b) under the IT Regulations, any insider when in possession of UPSI should not deal in securities of the company to which the UPSI pertains; and (c) even if such insider (having access to UPSI of a company) deals in such securities through a discretionary portfolio management scheme, the trades of insider will be presumed to be motivated by the knowledge and awareness of UPSI.




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