Regulatory updates

As per Regulation 2(1)(g) of SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT regulations), an ‘insider’ means any person who is a connected person or in possession of or has access to unpublished price-sensitive information (UPSI). Insider trading refers to the process of buying and selling of securities by the insiders of a listed entity who are in possession of confidential information about the entity, such as the employees, promoters, directors and executives. Regulation 5 of the PIT regulations inter alia permit an insider to be entitled to formulate a trading plan and present it to the compliance officer for approval and public disclosure. Trades may be executed on behalf of the insider in accordance with such trading plan.

On 25 June 2024, SEBI issued the Prohibition of Insider Trading (Second Amendment) Regulations, 2024 (the amendment) thereby amending Regulation 5 of the PIT regulations. These amendments would be applicable from 24 September 2024.

• Shorter cooling-off period: Under Regulation 5(2), a cool-off period¹This means that trading cannot commence earlier than 120 days from the public disclosure of the plan. of 120 days has been introduced (earlier, it was six months). The period of 120 days is also considered reasonable for unpublished price sensitive information that an insider is in possession of when formulating the trading plan, to become generally available.

• Removal of mandatory black out period: The amendments have omitted clause (ii) of Regulation 5(2) of the PIT regulations, which specified the period during which insiders could not trade² Regulation 5(2)(ii) prohibited trading by the insider between the twentieth trading day prior to the last day of any financial period for which results are required to be announced by the issuer of the securities and the second trading day after the disclosure of such financial results..

• Omission of minimum period of trading plan: The PIT regulations currently require a trading plan to cover the trading for a minimum period of 12 months. However, this requirement has now been removed.

• Trading within limited duration: The amendments require an insider to set certain parameters such as, inter alia, a specific date or duration not exceeding five consecutive trading days during which their trades should be executed. This is because the outer limit on the duration of the time period would allow the insiders to split their trades across different dates, however the duration should not be so long that it is prone to misuse.

• Deviations from trading plan: Regulation 5(4) of PIT regulations currently state that once a trading plan is approved, insiders should implement it without any deviation. The amendment has added exceptions to this regulation allowing insiders to strictly follow their trading plans, except in cases of permanent incapacity, bankruptcy or operation of law.

• Price limits for trade: The amendment provides an insider with an option to set an upper price limit for a buy trade and a lower price limit for a sell trade. The range for a buy trade can be up to 20 per cent higher than the closing price and for a sell trade can be up to 20 per cent lower than the closing price. This is to protect the insider from unexpected price movements.

• Time period for approval of trading plan: Currently, Regulation 5 of the PIT regulations does not prescribe a minimum time period within which the trading plan needs to be approved by the compliance officer. The amendment now requires the compliance officer to approve the trading plan within two trading days of receipt of the trading plan and notify the plan to the stock exchanges on the date of approval.

• Removal of contra trade restriction: The amendment has removed the contra trade³ Contra trade means a buy cannot be executed if a sell trade has been executed in the last six months. restrictions pursuant to a trading plan submitted by an insider.

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