In every listed company, there exist pieces of information which if made public will have an effect on the value of equity shares of the listed company. Such information should only be released in the market in such a way that it is not prejudicial to the interest of a particular section and is beneficial for all.
Anybody who uses such information for acquiring personal financial gains is guilty of insider trading. SEBI’s recent insider trading notification aims at creating a better control point within the organisation for the same.
Unpublished price sensitive information (UPSI) means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to information relating to the following :
One of the most important aspects of “corporate governance” is the concept of insider trading. It has to be made sure that insiders who possess knowledge about internal matters do not exploit their positions and take undue advantage of that knowledge. To prevent this from happening, companies need to have compliance and governance policies in place. They should also ensure that insiders of the company do not enter into transactions based on such information, till the information becomes “Generally available Information”.
There has been a steady rise in Insider trading vigilance by SEBI as well as in the number of investigations. In the period 2015-2019, SEBI has taken up 140+ insider trading cases out of which 70 were in 2019 alone. (source).
Moreover, the SEBI Act imposes penalties of INR 25 crore or three times the number of profits made out of insider trading, whichever is higher. The Act also prescribes that insider trading is punishable with a prison term of up to 10 years.
You, as the company secretary, are the nodal point for all compliance-related matters of the company, the link between SEBI, Company Management and Employees of the Company.
According to this clause of the SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION OF INSIDER TRADING) REGULATIONS, 2015 (c) “compliance officer” means any senior officer, designated so and reporting to the board of directors or head of the organisation in case board is not there, who is financially literate and is capable of appreciating requirements for legal and regulatory compliance under these regulations and who shall be responsible for compliance of policies, procedures, maintenance of records, monitoring adherence to the rules for the preservation of unpublished price sensitive information, monitoring of trades and the implementation of the codes specified in these regulations under the overall supervision of the board of directors of the listed company or the head of an organisation, as the case may be.
In relation to the regulation, you are obligated to implement the Prohibition of Insider Trading (PIT) code of conduct. Some of them include:
There arises a need for you to revisit and ensure the sanctity of your own controls and processes in relation to the handling of UPSI.
The extent to which your employees have been sensitised will determine the effectiveness of the processes and controls. Needless to say, any such instance affects the credibility and reputation of your listed company.
Some of the best practices that can be followed and implemented
By automating processes, we have found that there is improved efficiency & better controls in the monitoring of insider trading regulations. Some of the benefits include:
Takeaway: Insider trading is a serious issue, and listed companies must have compliance and governance policies in place to prevent it. Unpublished price-sensitive information (UPSI) is any information that, upon becoming generally available, is likely to materially affect the price of the securities. Insider trading is punishable with a penalty of INR 25 crore or three times the profits made out of insider trading, whichever is higher, and a prison term of up to 10 years.
Company Secretaries are responsible for ensuring compliance with regulations and must implement the Prohibition of Insider Trading (PIT) code of conduct, which includes framing a code of internal procedures and conduct, preparing a Chinese wall policy, maintaining a record of all directors, officers, and persons covered within the ambit of the term 'designated employee,' and maintaining a list of all information termed as 'Price Sensitive Information.'
To prevent insider trading, companies can follow best practices such as appointing a compliance officer, implementing an insider trading policy, training employees on insider trading, monitoring employee transactions, and using structured digital databases. Connect with Infomatics' team for automating prohibition of SEBI insider trading regulations and compliance
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