SEBI (Prohibition of Insider
Trading) Amendment Regulations, 2018 & AMENDMENT REGULATIONS, 2019-SEBI (PROHIBITION OF INSIDER TRADING)
SEBI
(Prohibition of Insider Trading) Amendment Regulations, 2018 on 31st December,
2018 and the amendments will take effect from 1st April, 2019, i.e. the
effective date.
To Prevent the leak of UPSI , SEBI suggested the following measures:
COMPANY’S POLICIES:
Company needs to frame a “Policy for Determination of Legitimate
Purposes”, wherein “Legitimate purpose” includes sharing of
unpublished price sensitive information (UPSI) by an insider with partners,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 these regulations.
INFORMATION SHARING:
Apart from sharing of information for legitimate purpose,
unpublished price sensitive information can only be shared if the Board is of
informed opinion that it will be in the best interests of the Company & the
same information would be made generally available within 2 days.
DIGITAL
DATABASE OF PERSONS HAVING UPSI:
The Board of Directors is now required to ensure that the
Company maintains a structured digital database of persons with whom
unpublished price sensitive information is shared along with PAN Number of such
persons. Such database to have time stamping and audit trail.
STRICTER PROVISION:
In case of any transaction in shares by any person while in
possession of unpublished price sensitive information, it shall be presumed
that such trade is motivated by the exclusive information for whatever reason
it may have been executed. Onus shall be on the person to prove innocence
before the Court of law.
DIRECT RESPONSIBILITY OF MANAGING DIRECTOR/CEO:
The Board of Directors is required to ensure that the MD /
CEO of the Company frames a Code of Conduct with their approval to regulate,
monitor and report trading by designated person or immediate relatives thereof.
CODE OF CONDUCT
Code of conduct to be framed by other parties/firms/consultants having
access to/ handling unpublished price sensitive information of our Company,
like Auditor firms, Consultants, Law firms, Bankers, Advisors etc. so that
their employees do not misuse UPSI for insider trading.
TO DESIGNATE A COMPLIANCE OFFICER
Identify and designate a
Compliance Officer to administer the Code of Conduct and requirements of
the Regulations.
DESIGNATED
PERSONS: The Board of Directors in consultation with the Compliance
Officer has to specify “Designated Persons” basis their role & function
& access to UPSI, which shall include –
- · Employees of the Company
- · All Promoters of the Company
- · CEO and Employees upto 2 levels below CEO (whether having access to UPSI or not is immaterial)
- · Any support staff such as IT staff or Secretarial staff
INTERNAL CONTROL SYSTEMS:
New requirement places
responsibility on the Managing Director an CEO to put in place adequate
and effective system of internal controls to ensure compliance with the
requirements of SEBI (Prohibition of Insider Trading) Regulations and to
prevent insider trading.
WHAT INTERNAL CONTROLS SHOULD INCLUDE –
- · Identification of all employees having access to UPSI as designated employees
- · All UPSI to be identified and confidentiality maintained
- · Restriction on communication or procurement of UPSI shall be placed
- · List of employees with whom UPSI is shared to be maintained and confidentiality agreements or notice to be served on them
- · Periodic process review to evaluate effectiveness of internal controls.
ROLE OF MANAGING DIRECTOR OR CEO
The Board shall ensure
that the Managing Director or the CEO shall ensure compliance with these
requirements.
♦ Further, the Audit Committee shall review compliance with the
Regulations at least once in a financial year and verify that internal control
systems are adequate and operating effectively.
WRITTEN POLICY AND PROCEDURE
Company has to frame a written policy and procedure for inquiry
in case of leakage or suspected leakage of unpublished price sensitive
information, which is to be approved by the Board of Directors. In such an
eventuality requirement is to start the inquiry process and inform the SEBI on
such leak, inquiry and result of such inquiry.
MINIMUM STANDARDS FOR CODE OF CONDUCT
The Minimum Standards for Code of Conduct for Listed Companies to
Regulate, Monitor and Report Trading by Designated Persons, have been amended
having the following implications –
REPORTING BY COMPLIANCE OFFICER
·
Compliance Officer to report to the Board of Directors and
Chairman of Audit Committee at such frequency as decided by the Board (but
atleast once in a year)
WHEN UPSI CAN BE COMMUNICATED
·
UPSI can be communicated only on need to know basis and for
legitimate purposes.
·
Designated Persons and their immediate Relatives to be governed
by internal code of conduct of the Company. They shall not trade while trading
window is closed.
TRADING WINDOW CLOSURE
Trading restriction
period (read Trading Window Closure) can be made applicable from end of every
quarter till 48 hours after declaration of financial results. The gap between
clearance of accounts by audit committee and board should be as narrow as possible
(preferably same day) to avoid leakage of UPSI.
CODE OF CONDUCT
Code of conduct to
specify a period (not being less than 6 months) during which a designated
person cannot do contra trade.
·
Code of conduct shall specify the formats approved by the Board
of Directors for –
> Application for pre-clearance of trades,
> Reporting of trades,
> Reporting of not trading in case pre-clearance of trading
was obtained,
> Reporting of holding in securities periodically.
·
Code of conduct shall specify – Disciplinary actions (wage freeze,
suspension, recovery / clawback etc. that may be imposed on violation of
the code.
·
Code of conduct shall specify that in case of violation of the
Regulations is observed by the Listed Entity it shall promptly inform the SEBI.
DISCLOSURE
BY DESIGNATED PERSONS
·
Designated persons shall be required to disclose name and
PAN or any other identifier authorized by law of the following persons to the
company on an annual basis and as and when the information changes:
o immediate
relatives
o persons
with whom such designated person(s) shares a material financial relationship
o Phone,
mobile and cell numbers which are used by them
o In
addition, the names of educational institutions from which designated persons
have graduated and names of their past employers shall also be disclosed on a
one time basis.
MEANING OF
MATERIAL FINANCIAL RELATIONSHIP
o Explanation
– The term “material financial relationship” shall mean a relationship in which
one person is a recipient of any kind of payment such as by way of a loan or
gift during the immediately preceding twelve months, equivalent to at least 25%
of such payer’s annual income but shall exclude relationships in which the
payment is based on arm’s length transactions.”] [wef 1-Apr-19]
·
Listed entities shall have a process for how and when people are
brought ‘inside’ on sensitive transactions. Individuals should be made aware of
the duties and responsibilities attached to the receipt of Inside Information,
and the liability that attaches to misuse or unwarranted use of such
information.
AMENDMENT REGULATIONS, 2019SEBI (PROHIBITION OF
INSIDER TRADING)
WHAT THE
AMENDMENT DEMANDS
These amendments will put the following responsibilities on the
promoter group –
INITIAL
DISCLOSURES
·
Regulation 7(1)(a) – All members of the promoter group are
required to furnish their shareholding position as on 21st January, 2019
to the Company within 30 days thereof.
·
Regulation 7(1) (b) – On becoming a promoter or member of the
promoter group, such person is now required to furnish their shareholding
position as on date of becoming so, to the Company within 7 days thereof.
CONTINUAL
DISCLOSURES
Regulation 7(2)(a) – Members of the promoter group are now
required to report trades in excess of Rs.10 Lacs to the Company within 2
trading days which are to be onward intimated by the Company (including Company
becoming aware of such trades) to the exchanges within further 2 trading days.
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