SEBI Eases 'Trading Plans' Framework For Company Insiders
Minimum cool-off period between disclosure and implementation of a trading plan has been reduced to four months.
Capital markets regulator Securities and Exchange Board of India has relaxed the framework for 'trading plans' for insiders of companies who constantly have access to undisclosed price-sensitive information.
The new rule allows individuals such as senior management or key managerial personnel to engage in securities trading through 'Trading Plans' in a compliant fashion.
SEBI has announced a reduction in the minimum cool-off period between the disclosure and implementation of a trading plan from six months to four months. This implies that trading plans can now only be executed after four months from their public disclosure.
The regulatory authority stated that the individual with insider knowledge will be allowed some leeway in setting price boundaries while formulating the trading plan.
This flexibility includes establishing upper limits for purchasing transactions and lower limits for selling transactions. These price restrictions must fall within +/-20% of the closing price on the day the TP is submitted. If the security's price exceeds the boundaries set by the insider, the trade will not proceed.
Upon approval of the trading plan, the compliance officer must notify the stock exchange(s) within two trading days of approval and also recommends disclosing the price limit.
If the trading plan is not fully or partially implemented due to lack of liquidity, the insider must inform the compliance officer of the non-implementation within two trading days after the plan ends, providing reasons and any supporting documents.
The compliance officer will present this information and their recommendation to the audit committee at its next meeting.
The audit committee will decide if the non-implementation was justified. The compliance officer will notify the stock exchanges of the audit committee's decision on the same day. If the audit committee rejects the insider's reasons, the compliance officer will follow the code of conduct to take appropriate action.
To give this effect, SEBI has amended insider trading rules, which will come into force on the 90th day from the date of its publication in the official gazette.
Going by the regulatory framework, the prohibition on insider trading is based on the premise that trading in securities by a person would be influenced by the UPSI in their possession, which is not accessible to others in the market.
However, insiders are allowed to trade, provided they are not in possession of the UPSI and subject to compliance with other provisions of the insider trading rules.
These insiders like those in the senior management, who have a very small window for carrying out their trades, may need to trade for purposes such as creeping acquisitions and for compliance with minimum public shareholding norms. Sometimes, they may wish to dispose of the shares acquired through exercising stock options.
In November 2023, Sebi issued a consultation paper to simplify the process of trading in shares for company officials, who usually have access to the UPSI.
(With inputs from PTI)
