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Company promoters and insiders can’t buy shares till June 30

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Sebi refuses exemption from trading curbs that come into effect during declaration of results.

Mumbai: Promoters and other insiders won’t be able to buy shares of companies between April 1 and up to June 30 — a window that’s wider than normal as they have been given extra time to report earnings because of the coronavirus lockdown.

Sebi has rejected promoters’ requests to exempt them from extending trading restrictions that apply at the time of results.

The regulator had recently allowed listed companies to file fourth-quarter and annual earnings by June 30, rather than May 31. This means the trading window will have to be closed for promoters and management from April 1 till 48 hours after declaration of quarterly results. Sebi rejected the demand, saying insiders would still have access to most of the unpublished annual financials for FY20.

“The rationale for not extending the date for trading window closure is that there may be firms wherein the financial results may have reached a stage which, if not precise, may be indicative of the actual outcome… consequently, whether the same would be positive/negative, which may amount to UPSI (unpublished price sensitive information),” said a Sebi official.

This could lead to insider trading, the person said.

Trading Restrictions Broadened

Sebi’s disclosure rules require companies to submit their annual financial results to stock exchanges within 60 days of the end of the financial year.

Companies said Sebi’s denial will broaden the trading restriction, which already applies for about seven months (202 days) of the financial year.

Such curbs should be relaxed to allow stakeholders to liquidate assets within the contours of law, according to an expert.

“While the Sebi relaxation circular provides an apparent relief to listed entities in certain aspects, the absence of a complementing relaxation of trading window norms has rendered such relaxation to be a restriction,” said Sumit Agrawal, founder, Regstreet Law Advisors, and a former Sebi official. “It is akin to no trading, hence no insider trading. This is an unintended consequence.”

All listed companies are required to specify the period during which the trading window is closed for promoters, directors and employees when they are in possession of unpublished price-sensitive information. The trading window is also applicable to auditors, accountancy firms, law firms, analysts and consultants who are assisting or advising the company. It stays closed during announcements such as financial results, dividends, mergers, takeovers, buybacks, public and rights issues and major expansion plans.

Sebi tightened the rules in 2019 after quarterly results of several blue-chip companies were leaked on social media platforms such as WhatsApp before official announcements to the stock exchange.