India: The Amendments To The SEBI (Prohibition Of Insider Trading) Regulations, 2015: Bane Or Boon?

Last Updated: 29 July 2019
Article by Mini Raman

The Securities and Exchange Board of India ("SEBI") vide the SEBI (Prohibition of Insider Trading) Amendment Regulations, 2018 ("First Amendment Regulations") notified certain amendments to the SEBI (Prohibition of Insider Trading) Regulations 2015 ("PIT Regulations") on December 31st 2018 based on the recommendations of an expert committee. The said amendments came into force on 1st April 2019. The SEBI further notified certain additional amendments vide the SEBI (Prohibition of Insider Trading) Amendment Regulations, 2019 on 21st January, 2019 ("Second Amendment Regulations"). The second set of amendments came into effect on 21st January 2019. This article seeks to understand the various amendments to the PIT Regulations introduced by the SEBI. This article does not comprehensively set out all the amendments to the PIT Regulations introduced by the SEBI vide the aforestated amendment regulations but merely seeks to highlight the important ones.

  1. Amendments to the PIT Regulations
  1. Insertion of definition of "proposed to be listed". The First Amendment Regulations have inserted the definition of "proposed to be listed" to include the securities of an unlisted company (i)if such unlisted company has filed offer documents or other documents, as the case may be, with the SEBI, stock exchange(s) or registrar of companies in connection with the listing; or (ii) if such unlisted company is getting listed pursuant to a scheme of merger or amalgamation and has filed a copy of such scheme of merger or amalgamation under the Companies Act, 2013.
  1. Insertion of definition of "promoter group". The Second Amendment Regulations have provided for the incorporation of the definition of "promoter group" into the PIT Regulations. The term "promoter group" has been defined to have the same meaning assigned to the said term under the SEBI (Issue of Capital and Discloser Requirements) Regulations, 2018 or any modification thereof.
  1. Amendment to the definition of "Unpublished Price Sensitive Information" ("UPSI"). The definition of "unpublished price sensitive information" has been amended to remove the inclusion of "material events in accordance with the listing agreement".
  1. "Legitimate Purpose". The First Amendment Regulations have inserted a new provision Regulation 2A whereinunder the board of directors of a listed company is bound to make a policy for the determination of "legitimate purposes" for which disclosures of UPSI maybe made. This policy is to be part of the "Code of Fair Disclosure and Conduct" to be formulated by the board of directors under the PIT Regulations. Regulation 2A further provides that "legitimate purpose" shall include the sharing of UPSI in the ordinary course of business by an insider with partners, collaborators, lenders, customers, suppliers, merchant bankers, legal advisors, auditors, insolvency professionals or other advisors or consultants, provided that such sharing has not been carried out to evade or circumvent the prohibitions of the PIT regulations

Furthermore under new Regulation 2B any person who is in receipt of UPSI pursuant to a "legitimate purpose" shall be deemed to an "insider" for the purposes of the PIT Regulations and due notice shall be given to such persons to maintain confidentiality of the UPSI in compliance with the PIT Regulations.

  1. Digital Database. Vide Regulation 3(5), the board of directors shall ensure that a structured digital database is maintained containing the names of such persons or entities as the case may be with whom information is shared under this regulation along with the Permanent Account Number or any other identifier authorized by law where Permanent Account Number is not available. Such databases shall be maintained with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database.
  1. Trading When In Possession of UPSI. Regulation 4(1) of the PIT Regulations has been amended to incorporate a legal presumption that when a person who has traded in securities has been in possession of UPSI, his trades would have been presumed to have been motivated by the knowledge and awareness of such information in his possession.
  1. Disclosers by Certain Persons. Regulation 7(1)(a) now requires that every member of the promoter group of a listed company shall disclose his holdings of securities in the company as on the date of the regulations taking effect to the company within 30 days of the regulations taking effect. Earlier such disclosure was required to be made only by the promoters, key managerial personnel and directors.

Additionally, under Regulation 7(1)(b) every person on becoming a promoter or member of the promoter group shall disclose his holdings in the company as on the date of his becoming a promoter to the company within 7 days of his becoming a promoter. Earlier such disclosures were required only by directors and key managerial personnel.

Under Regulation 7(2)(a) every member of the promoter group and designated person of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as may be specified; Earlier such disclosure was required only from the promoters and directors of companies.

  1. Code of Conduct. Amendments have been made to Regulation 9 (1) of the PIT Regulations so as to provide for the formulation by every listed company and intermediary of a code of conduct to govern the trading by designated persons and their immediate relatives. The standards specified in Schedule B (in case of listed companies) and Schedule C (in case of intermediaries) of the PIT Regulations are required to be adhered to by such codes of conduct formulated by listed companies and intermediaries registered with the SEBI.

Additionally Regulation 9(2) has been incorporated to provide for the formulation of and adherence to a code of conduct by entities who handle UPSI (other than listed companies and intermediaries) such as professional firms. Such a code will govern the trading in securities by the designated persons in such entities.

  1. Institutional Mechanism for Prevention of Insider Trading. A new Regulation 9A has been incorporated to provide for the setting up by the CEO or MD of a listed company, intermediary or fiduciary to put in place adequate and effective system of internal controls to ensure compliance with the requirements given in the PIT Regulations to prevent insider trading. The internal controls shall include the following: (a) all employees who have access to unpublished price sensitive information are identified as designated employee; (b) all the UPSI shall be identified and its confidentiality shall be maintained as per the requirements of the PIT Regulations; (c) adequate restrictions shall be placed on communication or procurement of UPSI as required by the PIT Regulations; (d). lists of all employees and other persons with whom UPSI is shared shall be maintained and confidentiality agreements shall be signed or notice shall be served to all such employees and persons; (e)all other relevant requirements specified under these regulations shall be complied with; and (f). periodic process review to evaluate effectiveness of such internal controls.

Further, under Regulation 9(A)(3) the board of directors of every listed company and the board of directors or head(s) of the organisation of intermediaries and fiduciaries shall ensure that the CEO or the MD or such other analogous person ensures compliance with Regulation 9 (1) and Regulation 9(2) in setting up an institutional mechanism for the prevention of insider trading. Further the Audit Committee of a listed company or other analogous body for intermediary or fiduciary is also bound to review compliance with the provisions of the PIT Regulations at least once in a financial year and to verify that the systems for internal control are adequate and are operating effectively.

Every listed company has to formulate written policies and procedures for inquiry in case of leak of UPSI or suspected leak of UPSI and accordingly initiate appropriate inquiries on becoming aware of a leak of UPSI or suspected leak of UPSI. The concerned company must also inform the SEBI promptly of such leaks, inquiries and results of such inquiries.

Listed companies are also bound to have a whistle-blower policy and make employees aware of such policy to enable employees to report instances of leak of UPSI. If an inquiry has been initiated by a listed company in case of leak of UPSI or suspected leak of UPSI, the relevant intermediaries and fiduciaries are bound to co-operate with the listed company in connection with such inquiry.


The intent behind these comprehensive amendments has to be appreciated keeping in mind the need of regulation in light of the maturing of the capital markets in India. However, it has to be considered whether the regulator has been over zealous in ensuring compliance of the PIT Regulations and whether these compliance requirements are practically feasible.

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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