Securities and Exchange Board of India (Prohibition of Insider Trading) (Second Amendment) Regulations, 2024
Foreword
SEBI vide Notification No. SEBI/LAD-NRO/GN/2024/184 came up with Securities and Exchange Board of India (Prohibition of Insider Trading) (Second Amendment) Regulations, 2024 to further amend SEBI (Prohibition of Insider Trading) Regulations, 2015.
Applicability of the amendment:
The Securities and Exchange Board of India (Prohibition of Insider Trading) (Second Amendment) Regulations, 2024 shall come into force on the ninetieth day from the date of their publication in the Official Gazette.
Highlights: –
- Regulation 5 (2) (i) :
In clause (i) and in its notes of Regulation 5, sub-regulation 2 – “six months” shall be substituted by the words “one hundred and twenty calendar days”
Further in the Notes – the words “Such a” shall be substituted by the words and symbols “Companies declare their results quarterly and there exists a trading restriction, in terms of these Regulations, from quarter end to two days after declaration of quarterly result, which, it is seen, is generally a period of around one month for most companies. Thus, one hundred and twenty calendar days”.
Consequent to amendment, Regulation 5 (2) (i) to be read as:
Such trading plan shall: –
i. not entail commencement of trading on behalf of the insider earlier than one hundred and twenty calendar days from the public disclosure of the plan;
NOTE: It is intended that to get the benefit of a trading plan, a cool-off period of one hundred and twenty calendar days is necessary. Companies declare their results quarterly and there exists a trading restriction, in terms of these Regulations, from quarter end to two days after declaration of quarterly result, which, it is seen, is generally a period of around one month for most companies. Thus, one hundred and twenty calendar days period is considered reasonably long for unpublished price sensitive information that is in possession of the insider when formulating the trading plan, to become generally available. It is also considered to be a reasonable period for a time lag in which new unpublished price sensitive information may come into being without adversely affecting the trading plan formulated earlier. In any case, it should be remembered that this is only a statutory cool-off period and would not grant
immunity from action if the insider were to be in possession of the same unpublished price sensitive information both at the time of formulation of the plan and implementation of the
same.
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Earlier, the trading plan could not be commenced until 6 months from the public disclosure of the plan. Vide this notification, the period has been reduced to 120 calendar days.
- Regulation 5 (2) (ii):
Clause (ii) along with their notes shall be omitted.
(ii) not entail trading for the period between the twentieth trading day prior to the last day of any financial period for which results are required to be announced by the issuer of the securities and the second trading day after the
disclosure of such financial results;
NOTE: Since the trading plan is envisaged to be an exception to the general rule prohibiting trading by insiders when in possession of unpublished price sensitive information, it is important that the trading plan does not entail trading for a reasonable period around the declaration of financial results as that would generate unpublished price sensitive information.
- Regulation 5 (2) (iii):
Clause (iii) along with their notes shall be omitted.
(iii) entail trading for a period of not less than twelve months;
NOTE: It is intended that it would be undesirable to have frequent announcements of trading plans for short periods of time rendering meaningless the defence of a reasonable time gap between the decision to trade and the actual trade. Hence it is felt that a reasonable time would be twelve months.
Regulation 5 (2) (v):
The words and symbols “set out either the value of trades to be effected or the number of securities to be traded along with the nature of the trade and the intervals at, or dates on which such trades shall be effected; and” shall be
substituted by the following, namely: –
set out following parameters for each trade to be executed:
(i) either the value of trade to be effected or the number of securities to be traded;
(ii) nature of the trade;
(iii) either specific date or time period not exceeding five consecutive trading days;
(iv) price limit, that is an upper price limit for a buy trade and a lower price limit for a sell trade, subject to the range as specified below:
a. for a buy trade: the upper price limit shall be between the closing price on the day before submission of the trading plan and upto twenty per cent higher than such closing price;
b. for a sell trade: the lower price limit shall be between the closing price on the day before submission of the trading plan and upto twenty per cent lower than such closing price.
Explanation:
(i) While the parameters in sub-clauses (i), (ii) and (iii) shall be mandatorily mentioned for each trade, the parameter in sub-clause (iv) shall be optional.
(ii) The price limit in sub-clause (iv) shall be rounded off to the nearest numeral.
(iii) Insider may make adjustments, with the approval of the compliance officer, in the number of securities and price limit in the event of corporate actions related to bonus issue and stock split occurring after the approval of trading plan and the same shall be notified on the stock exchanges on which securities are listed.”
in the note of clause v, the word “intervals” shall be substituted by the word period”
in the note, after the words and symbol “may be set out in the plan.”, the words and symbol “However, there should be an outer limit on the duration of the time period, so that while it allows the insider to split their trades across different dates, duration should not be so long that it is prone to misuse.
Further, to protect the insider from unexpected price movements, he may, at the time of formulation of trading plan, provide price limits within the range specified in these Regulations.” shall be inserted.
Consequent to amendment, Regulation 5 (2) (v) to be read as:
set out following parameters for each trade to be executed:
(i) either the value of trade to be effected or the number of securities to be traded;
(ii) nature of the trade;
(iii) either specific date or time period not exceeding five consecutive trading days;
(iv) price limit, that is an upper price limit for a buy trade and a lower price limit for a sell trade, subject to the range as specified below:
a. for a buy trade: the upper price limit shall be between the closing price on the day before submission of the trading plan and upto twenty per cent higher than such closing price;
b. for a sell trade: the lower price limit shall be between the closing price on the day before submission of the trading plan and upto twenty per cent lower than such closing price.
Explanation:
(i) While the parameters in sub-clauses (i), (ii) and (iii) shall be mandatorily mentioned for each trade, the parameter in sub-clause (iv) shall be optional.
(ii) The price limit in sub-clause (iv) shall be rounded off to the nearest numeral.
(iii) Insider may make adjustments, with the approval of the compliance officer, in the number of securities and price limit in the event of corporate actions related to bonus issue and stock split occurring after the approval of trading plan
and the same shall be notified on the stock exchanges on which securities are listed.”
set out either the value of trades to be effected or the number of securities to be traded along with the nature of the trade and the intervals at, or dates on which such trades shall be effected; and
NOTE: It is intended that while regulations should not be too prescriptive and rigid about what a trading plan should entail, they should stipulate certain basic parameters that a trading plan should conform to and within which, the plan may be formulated with full flexibility. The nature of the trades entailed in the trading plan i.e. acquisition or disposal should be set out. The trading plan may set out the value of securities or the number of securities to be invested or divested. Specific dates or specific time intervals period may be set out in the plan. However, there should be an outer limit on the duration of the time period, so that while it allows the insider to split their trades across different dates, duration should not be so long that it is prone to misuse. Further, to protect the insider from unexpected price movements, he may, at the time of formulation of trading plan, provide price limits within the range specified in these Regulations.”
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Following parameters for each trade to be executed has been prescribed:
(i) Either the value of trade to be effected or the number of securities to be traded
The parameters in this sub-clause shall be mandatorily mentioned for each trade
(ii) Nature of the trade; The parameters in this sub-clause shall be mandatorily mentioned for each trade
(iii) Either specific date or time period no exceeding five consecutive trading days The parameters in this sub-clause shall be mandatorily mentioned for each trade
(iv) Price limit, that is an upper price limit for a buy trade and a lower price limit for a sell trade, subject to the range as specified below:
(a) for a buy trade: the upper price limit shall be between the closing price on the day before submission of the trading plan and upto twenty per cent higher than such closing price;
(b) for a sell trade: the lower price limit shall be between the closing price on the day before submission of the trading plan and upto twenty per cent lower than such closing price
The parameters in this sub-clause shall be optional for each trade The price limit shall be rounded off to the nearest numeral.) The insider may make adjustments to the trading plan, in the number of securities and price limit with the approval of compliance officer in the event of corporate actions related to bonus issue and stock split after approval of trading plan and the same shall be notified on the stock exchanges on which securities are listed.
Regulation 5 (3):
The words “and restrictions on contra trade” shall be omitted from second proviso.
Consequent to amendment, second proviso to Regulation 5 (3) to be read as: Provided further that trading window norms and restrictions on contra trade
shall not be applicable for trades carried out in accordance with an approved trading plan.
Regulation 5 (4):
the words “deviate from it or to” shall be omitted;
after the words “outside the scope of the trading plan” and before the symbol “.”, the words “or to deviate from it except due to permanent incapacity or bankruptcy or operation of law”, shall be inserted
In the proviso, the words and symbols “and in such event the compliance officer shall confirm that the commencement ought to be deferred until such unpublished price sensitive information becomes generally available information
so as to avoid a violation of sub-regulation (1) of regulation 4” shall be omitted;
after the existing proviso thereto, the following proviso and Explanation shall be inserted, namely: –
“Provided further that if the insider has set a price limit for a trade under subclause (iv) of clause (v) of sub-regulation 2, the insider shall execute the trade only if the execution price of the security is within such limit. If price of the security is outside the price limit set by the insider, the trade shall not be executed
Explanation: In case of non-implementation (full/partial) of trading plan due to either reasons enumerated in sub-regulation 4 or failure of execution of trade due to inadequate liquidity in the scrip, the following procedure shall be adopted:
(i) The insider shall intimate non-implementation (full/partial) of trading plan to the compliance officer within two trading days of end of tenure of the trading plan with reasons thereof and supporting documents, if any.
(ii) Upon receipt of information from the insider, the compliance officer, shall place such information along with his recommendation to accept or reject the submissions of the insider, before the Audit Committee in the immediate next
meeting. The Audit Committee shall decide whether such non-implementation (full/partial) was bona fide or not.
(iii) The decision of the Audit Committee shall be notified by the compliance officer on the same day to the stock exchanges on which the securities are listed.
(iv) In case the Audit Committee does not accept the submissions made by the insider, then the compliance officer shall take action as per the Code of Conduct.”;
in the note, after the words “market have assessed their views on the securities” and before the symbol “.”, the words “except in situations beyond the control of the insider” shall be inserted;
in the second paragraph of the note,
(a) after the word “the” and before the word “proviso”, the word “first” shall be inserted;
(b) the words “six months” shall be substituted by the words “one hundred and twenty calendar days”;
(c) the words “commencement of execution of the trading plan ought to be deferred” shall be substituted by the words “execution of the trading plan should not be commenced.”;
after the second paragraph of the note, the following paragraph shall be inserted, namely: –
“The second proviso is intended to address the scenario where the insider has set a price limit for a trade and due to adverse fluctuation in market prices, the price of the security is outside the price limit set by the insider, the trade shall not be executed. However, if the insider wishes to trade irrespective of the fluctuation in market price, he may not set any price limit at the time of formulation of the trading plan.”
Consequent to amendment, second proviso to Regulation 5 (4) to be read as:
The trading plan once approved shall be irrevocable and the insider shall mandatorily have to implement the plan, without being entitled to either deviate from it or to execute any trade in the securities outside the scope of the trading
plan or to deviate from it except due to permanent incapacity or bankruptcy or operation of law. Provided that the implementation of the trading plan shall not be commenced if any unpublished price sensitive information in possession of the insider at the time of formulation of the plan has not become generally available at the time of the commencement of implementation and in such event the compliance officer shall confirm that the commencement ought to be deferred until such unpublished price sensitive information becomes generally available information so as to avoid a violation of sub-regulation (1) of regulation 4.
Provided further that if the insider has set a price limit for a trade under subclause (iv) of clause (v) of sub-regulation 2, the insider shall execute the trade
only if the execution price of the security is within such limit. If price of the security is outside the price limit set by the insider, the trade shall not be executed
Explanation: In case of non-implementation (full/partial) of trading plan due to either reasons enumerated in sub-regulation 4 or failure of execution of trade due to inadequate liquidity in the scrip, the following procedure shall be adopted:
(i) The insider shall intimate non-implementation (full/partial) of trading plan to the compliance officer within two trading days of end of tenure of the trading plan with reasons thereof and supporting documents, if any.
(ii) Upon receipt of information from the insider, the compliance officer, shall place such information along with his recommendation to accept or reject the submissions of the insider, before the Audit Committee in the immediate next meeting. The Audit Committee shall decide whether such non-implementation (full/partial) was bona fide or not.
(iii) The decision of the Audit Committee shall be notified by the compliance officer on the same day to the stock exchanges on which the securities are listed.
(iv) In case the Audit Committee does not accept the submissions made by the insider, then the compliance officer shall take action as per the Code of Conduct.
NOTE: It is intended that since the trading plan is an exception to the general rule that an insider should not trade when in possession of unpublished price sensitive information, changing the plan or trading outside the same would negate the intent behind the exception. Other investors in the market, too, would factor the impact of the trading plan on their own trading decisions and in price discovery. Therefore, it is not fair or desirable to permit the insider to deviate from the trading plan based on which others in the market have assessed their views on the securities except in situations beyond the control of the insider.
The first proviso is intended to address the prospect that despite the six-month one hundred and twenty calendar days gap between the formulation of the trading plan and its commencement, the unpublished price sensitive information in possession of the insider is still not generally available. In such a situation, commencement of the plan would conflict with the over-riding principle that trades should not be executed when in possession of such information. If the very same unpublished price sensitive information is still in the insider’s possession, the commencement of execution of the trading plan ought to be deferred execution of the trading plan should not be commenced. The second proviso is intended to address the scenario where the insider has set a price limit for a trade and due to adverse fluctuation in market prices, the price of the security is outside the price limit set by the insider, the trade shall not be executed. However, if the insider wishes to trade irrespective of the fluctuation in market price, he may not set any price limit at the time of formulation of the trading plan.
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The Notification reinforces on the non-deviation from the trading plan except due to permanent incapacity or bankruptcy or operation of law. In case the insider has set a price limit for the trade, the trade shall be executed
only if the execution price of the security is within the limit. If it is outside the price limit, the trade shall not be executed. The procedure to be followed in case of non-implementation (full/partial) of trading plan has been provided for in the Notification, whereby, the insider shall intimate non-implementation (full/partial) of trading plan to the compliance officer within two trading days of end of tenure of the trading plan with reasons thereof and supporting documents, if any. The compliance officer, shall place such information along with his recommendation to accept or reject the submissions of the insider, before the Audit Committee in the immediate next meeting. The decision of the Audit Committee shall be notified by the compliance officer on the same day to the stock exchanges on which the securities are listed. In case the Audit Committee does not accept the submissions made by the insider, then the compliance officer shall take action as per the Code of Conduct. If due to adverse fluctuations in market price, the price of the security is outside the price limit set by the insider, the trade shall not be executed. However, if the insider wishes to trade irrespective of the fluctuation in market price, he may not set any price limit at the time of formulation of the trading plan.
Regulation 5 (5):
In regulation 5, sub-regulation (5) shall be substituted by the following, namely: – “The compliance officer shall approve or reject the trading plan within two trading days of receipt of the trading plan and notify the approved plan to the stock exchanges on which the securities are listed, on the day of approval.”. Consequent to amendment, second proviso to Regulation 5 (5) to be read as: The compliance officer shall approve or reject the trading plan within two trading
days of receipt of the trading plan and notify the approved plan to the stock exchanges on which the securities are listed, on the day of approval. Upon approval of the trading plan, the compliance officer shall notify the plan to
the stock exchanges on which the securities are listed.