Securities and Exchange Board of India
(``SEBI``) last week approved SEBI (Prohibition of
Insider Trading) Regulations, 2014 (``New
Regulations``). This update will briefly examine the
revisions proposed by SEBI in its New Regulations.
Background: SEBI constituted a committee under
the chairmanship of Justice N K Sodhi
(``Committee``) to strength the regulatory
framework in dealing with the insider trading regulations in India.
The Committee in December 2013 submitted a comprehensive report and
recommend a new set of insider trading regulations. SEBI last week
in its board meeting broadly approved the recommendation of the
Committee and substituted old regulations with New Regulations.
While the text of the New Regulations is still to be published and
notified, following are the key changes approved by the SEBI
Key Changes in the New Regulations
Definition of Insider: The definition of
`Insider` has been widened to include person connected on the basis
of being in any a) contractual; b) fiduciary or c) employment
relationship that allows such a person to access unpublished price
sensitive information (UPSI). Further, Insider will also include a
person who is in possession or has access to UPSI
Immediate Relatives: Immediate relatives will
be presumed to be connected persons, with a provision of right to
challenge this presumption. SEBI in past has faced several
difficulties in showing evidence for passing of UPSI to an
immediate relative. With this proposed amendment, the burden of
proof will now shift on the immediate relative to prove that he or
she did not hold UPSI before trading the securities.
UPSI Strengthened: UPSI under the old
regulations was been defined as information not generally available
and which may impact the price. The New Regulations strengthens the
definition of UPSI by providing a test to identify price sensitive
information, aligning it with listing agreement and providing
platform of disclosure. Earlier, the definition of price sensitive
information had reference to company only; now it has reference to
both a company and securities. Further, generally available
information means information that is accessible to the public on a
non‐discriminatory platform which would ordinarily be stock
Legitimate Business Transaction:: Aligning
insider trading norms with international practices and facilitate
legitimate business transaction, SEBI now intends to permit access
of UPSI though due‐diligence with appropriate safe guards.
This provision will make it easier for private equity and strategic
investors for accessing UPSI during their due diligence. However to
maintain the information cemetery, UPSI must be disclosed at least
2 days before the trading.
Management holding UPSI: Insiders who are
liable to possess UPSI all round the year i.e. CEO, CFO and senior
management of the company, would now have the option to formulate
pre‐scheduled trading plans. Trading plans would, however,
will be required to be disclosed on the stock exchanges and have to
be strictly adhered to.
Ease of Compliance Burden: Repeated
disclosures have been removed so as to ease compliance burden and
to align with the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 (``Takeover Code``). Disclosure of any
change of 2% for persons holding more than 5% shares or voting
rights has been removed as they are prescribed under Takeover
Broadly, the changes proposed by SEBI are significant. It
primarily endeavours to provide a good legal system and broadening
the definition of insider to curtailing any person from wrong
trading in securities who has advantage of having asymmetrical
access to unpublished information. However, we will have wait for
wordings of the New Regulations for its true interpretation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
Whilst trade and barter have existed since early times, the modern practice of forming business relationships through the means of contract has come into existence only since the industrial revolution in the West.
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