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Firms rush to meet Sebi’s rules on insider trading

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Changes have been made to the requirements of companies’ code of conduct.

Listed rms are rushing to comply with the Securities and Exchange Board of India’s latest Insider Trading regulations ahead of the March 31 deadline. The regulator had asked companies to frame their insider trading rules in the new financial year starting April 1.

“Pursuant to Sebi’s noti cation on December 31, 2018, various new compliance requirements have been imposed on listed companies and intermediaries. Sebi has asked listed companies to have in place a policy and procedure for conducting inquiry in case of any leak of unpublished price sensitive information (UPSI), which was not a mandatory requirement earlier,” said Tomu Francis, partner, Khaitan & Co, a law rm.

“Similarly, it has asked companies to frame a policy pertaining to whistle- blowers for reporting any violations pertaining to insider trading by designated employees,” he added. Regulation prohibits an insider from trading in securities while in possession of UPSI. The amendment has added an explanation to the clause which says that all trades undertaken while in possession of UPSI will be presumed to be ‘motivated’ by UPSI. Tomu said, “Over the last few weeks, we have been helping many such entities in enhancing their internal frameworks in terms of insider trading regulations as the same is being viewed very seriously by both listed companies and other market intermediaries.”

Companies need to frame a policy on what constitutes “legitimate purpose” as part of the Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information. Changes have been made to the requirements of companies’ code of conduct such as inclusion of promoters and members of the promoter group to the class of designated employees.

While some lawyers said these amendments will bring more transparency to the system, others said it will increase the compliance cost for companies.

“The task is onerous on the companies to create hygiene in their transactions and conduct of employees,” said Sumit Agrawal, Founding Partner, RegStreet Law Advisors.