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Prohibition of Insider Trading

Frequently Asked Questions on Insider Trading


Tejas Fadia
AVP - Business Analyst, Infomatics Services Pvt. Ltd.

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FAQ on Insider Trading
  1. What is Insider Trading?
  2. What are SEBI Regulations on Prohibition of Insider Trading?
  3. What is Structured Digital Database for UPSI?
  4. What are the latest amendments of SEBI Insider Trading Regulations?
  5. What are the periodic disclosures requirements as an insider?
  6. How many times has SEBI amended the insider trading policy?
  7. Do I need an automation solution to manage the regulation?

What is Insider Trading?


Insider trading is defined as a malpractice wherein trade of a company's securities is undertaken by people, who by virtue of their work or relationship with the people working with the company (defined as Insider), have access to the otherwise non-public information which can be crucial for making investment decisions.

It gives an unfair advantage to the Insider with respect to understanding the financial position of the company, whereas the other shareholders and investors are at a great disadvantage due to lack of important insider non-public information.


What are SEBI Regulations on Prohibition of Insider Trading?


SEBI has made the compliance officer of an organisation to be responsible for monitoring all the trade made by Access/ Designated employees and close the trading window for the trade if the employees could be in possession of non-public Information.

It mandates the compliance department to create a base framework (using sebi guidelines on Prohibition of insider trading ) for regulating the Trading in securities by Employees as well as their Dependants including spouses.


What is Structured Digital Database for UPSI?


As per the new amendment, SEBI has made additional compliances where all listed companies and connected persons as defined under the regulation are required to maintain a structured digital database with adequate internal controls, containing the name(s) and PAN Number(s) of the person(s) with whom UPSI is shared and the nature of UPSI. Also maintaining a list of all employees and other persons with whom unpublished price sensitive information is shared and confidentiality agreements signed.


What are the latest amendments of SEBI Insider Trading Regulations?


On July 17, 2020, SEBI notified the Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations, 2020 (“PIT Amendment”), to introduce further changes to the PIT Regulations.


What are the periodic disclosures requirements as an insider?


Initial disclosure

Every Promoter, Key Managerial Personnel and Director of the Company whose securities are listed on any recognized stock exchange shall disclose (Form 4) his holding of securities of the Company as on the date of these regulations taking effect to the Company within thirty days of these regulations taking effect

Continual Disclosure

Every promoter, designated employee and Director of every Company shall disclose in Form 5 & 6 to the Company the number of such securities acquired or disposed of within two trading days of such transactions if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of Rs.10 lakhs or such other value as may be specified.


How many times has SEBI amended the insider trading policy?


The base guidelines for Prohibition of Insider Trading is as per SEBI insider trading guidelines 1992. SEBI has been making amendments to the policy every year to ensure Insider trading policy framework becomes more robust. Few of the major recent amendments have been coming almost every year i.e. 2015, 2018, 2019 as well as in 2020.


Do I need an automation solution to manage the regulation?


- It is risky & prone to errors for using a combination of emails and spreadsheets to manage & track details of Initial Holdings, Transaction Requests, Transaction Reporting & Periodic Disclosures of employees & for their dependents.

- It is also cumbersome to manually track violations of Holding period/ Contra transactions, UPSI as well as Restricted lists & information of employees stored in spreadsheets & physical documents.

In both cases, a proven automation solution like Velox reduces your risks and improves on your reporting accuracy with minimal efforts.

Besides, a good automation tool allows:

  1. Having a Centralized data storage of the investments & holdings of employees, immediate dependents & persons with material financial relationships makes it easier for faster retrieval of past information.
  2. Automated approval/rejection of trade requests helps you to save time and provides greater visibility.
  3. Configurable holding/contra restrictions provides for a better control.
  4. Setting up UPSI, blackout period/no-trading windows can be better managed within your defined system.
  5. Automating the restricted securities list would reject any trading requests that are based on your preset rules.
  6. Electronic submissions of periodical disclosures makes it hassle free for all stakeholders.
  7. Systematic work-flow for all trading approvals, automated reminder emails, notification alerts & audit trail keeps your entire process well defined and in auto-mode.

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Final Note


Also check Velox-Compliance, our workflow product that can help you mitigate your risks on all aspects related to the regulations on prohibition of insider trading.

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