𝐒𝐄𝐁𝐈 𝐩𝐫𝐨𝐩𝐨𝐬𝐞𝐬 𝐞𝐱𝐞𝐦𝐩𝐭𝐢𝐧𝐠 𝐍𝐂𝐒 𝐭𝐫𝐚𝐧𝐬𝐚𝐜𝐭𝐢𝐨𝐧𝐬 𝐟𝐫𝐨𝐦 𝐭𝐫𝐚𝐝𝐢𝐧𝐠 𝐰𝐢𝐧𝐝𝐨𝐰 𝐧𝐨𝐫𝐦𝐬

𝐎𝐯𝐞𝐫𝐯𝐢𝐞𝐰: The Securities and Exchange Board of India (SEB) has issued a consultation paper aimed at exempting certain transactions, like subscriptions to Non-Convertible Securities (NCS), from the notional trading window restrictions under the Prohibition of Insider Trading (PIT) Regulations, 2015.

𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐍𝐂𝐒?

They refer to financial instruments that cannot be converted into equity shares of the issuing company. These securities include instruments like Non-Convertible Debentures (NCDs), non-convertible redeemable preference shares, perpetual non-cumulative preference shares, perpetual debt instruments, and other securities as specified by the SEBI. The issuance and listing of NCS are governed by the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.

𝐏𝐫𝐨𝐩𝐨𝐬𝐚𝐥 𝐢𝐧 𝐭𝐡𝐞 𝐂𝐨𝐧𝐬𝐮𝐥𝐭𝐚𝐭𝐢𝐨𝐧 𝐏𝐚𝐩𝐞𝐫

As per the Regulation 9 of the PIT Regulations, companies are required to formulate a code of conduct by which trading is prohibited when Unpublished Price Sensitive Information (UPSI) could be accessed by designated persons (DPs). Regulation 9 read with clause 4(2) of Schedule B of the PIT Regulations provides the period of trading window restriction, which starts from the end of every quarter till 48 hours after the declaration of financial results. The trading window closure prevents unfair trading advantages by temporarily restricting trades during such period for DPs and their immediate relatives.

However, the PIT regulations also provides for exemptions from trading window restrictions which are granted by SEBI based on the guiding principles. Currently, certain pre-determined transactions like rights issues and conversions of warrants are already exempt from these restrictions under clause 4(3) of Schedule B of the PIT Regulations. SEBI is now considering expanding these exemptions to include NCS transactions, which include non-convertible debentures, redeemable preference shares and other similar instruments.

𝐑𝐚𝐭𝐢𝐨𝐧𝐚𝐥𝐞 𝐟𝐨𝐫 𝐛𝐫𝐢𝐧𝐠𝐢𝐧𝐠 𝐭𝐡𝐞 𝐩𝐫𝐨𝐩𝐨𝐬𝐞𝐝 𝐜𝐡𝐚𝐧𝐠𝐞
These NCS transactions meet SEBI’s three guiding principles for granting exemption:
Pre-decided events – These are known well in advance.
Regulated – Governed by established SEBI frameworks.
Subject to disclosures – Full transparency and approvals are required from shareholders.

Hence, SEBI is considering exempting NCS transactions and other similar transactions / instruments which ticks the above laid down three principles. This proposal is part of SEBI’s broader effort to enhance the ease of doing business.

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