Trading violations: Sebi comes out with stringent insider trading norms

By: | Updated: November 19, 2014 8:30 PM

Sebi approves stricter norms, including new definition for connected people, to prevent menace.

Insider trading refers to dealing in securities after having access to unpublished price sensitive information and such practices provide unfair advantage to the entity who has privy to such details. (AP)Insider trading refers to dealing in securities after having access to unpublished price sensitive information and such practices provide unfair advantage to the entity who has privy to such details. (AP)

Revamping its nearly two-decade old regulations on insider trading, Sebi today approved stricter norms, including new definition for connected people, to prevent the menace.

Apart from clarity on concepts and definitions, the new regulations strengthen legal and enforcement framework while also ensuring that legitimate business transactions are not impacted.

The new Prohibition of Insider Trading Regulations were approved by the board of Securities and Exchange Board of India (Sebi) here today.

“The new regulations strengthen the legal and enforcement framework, align Indian regime with international practices, provide clarity with respect to the definitions and concepts, and facilitate legitimate business transactions,” Sebi said in a statement after the board meeting.

Sebi has expanded the definition of ‘Insider’ to include persons connected on the basis of being in any contractual, fiduciary or employment relationship that allows such people access to unpublished price sensitive information (UPSI).

Under the new framework, Sebi has defined a connected person in the context of insider trading activities.

A connected person would be someone who is or has during the past six months prior to the concerned act has been associated with a company, directly or indirectly.

Besides, immediate relatives of connected persons would also come under the same category unless they prove that they were not privy to unpublished price sensitive information.

The onus of establishing that they were not in possession of UPSI would be with the connected persons.

The regulator has decided to remove the requirement for repeated disclosures and ease compliance burden.

“Disclosure of any change of two per cent for persons holding more than five per cent shares or voting rights has been removed as they are prescribed under Takeover Code,” the statement added.

To protect the interest of investors, companies must now disclose UPSI at least two days prior to trading in case of permitted communication of such information.

Besides, communication of such information is prohibited except in instances of legitimate purposes or discharge of legal obligations.

Insider trading refers to dealing in securities after having access to unpublished price sensitive information and such practices provide unfair advantage to the entity who has privy to such details.

Sebi has come across various instances of insider trading activities not just at small companies but also at larger ones.

The definition of UPSI has been strengthened by “providing a test to identify price sensitive information, aligning it with listing agreement and providing platform of disclosure”.

Earlier, the definition of price sensitive information had reference to company only, now it has reference to both a company and securities.

Companies by law would be entitled to require third-party connected persons to disclose their trading and holdings in securities of the company.

In line with the new Companies Act, prohibition on derivative trading by directors and key managerial personnel on securities of the company has been provided.

Disclosure of UPSI in public domain has been made mandatory before trading, so as to rule out asymmetry of information in the market.

“A provision of Trading Plans on the lines of US has been introduced for insiders with necessary safeguards. Such a plan has to be for bona fide transactions and has to be disclosed on stock exchange platform in advance,” the release said.

To provide clarity, generally available information has been defined as information that is accessible to public on a non-discriminatory platform such as stock exchange.

Meanwhile, insiders who are liable to possess UPSI all round the year would have the option to formulate pre-scheduled trading plans.

Among others, principle-based Code of Fair Disclosure and Code of Conduct has been prescribed.

The latest norms have been prepared after taking into consideration recommendations of Sodhi panel and suggestions from various other quarters.

After extensive deliberations, a panel headed by former Justice N K Sodhi had submitted its report on insider trading norms in December 2013. Sodhi was former Chief Justice of Karnataka and Kerala High Courts.

Sebi makes delisting easier, reduces time to 76 working days

Making delisting of companies less cumbersome, capital market regulator Sebi today approved revamped norms that reduce the time taken for completing the process by about half from minimum 137 days at present.

The changes, aimed at making the existing regulatory framework on delisting more effective, have been cleared by the board of Securities and Exchange Board of India (Sebi) during their meeting here.

“Timelines for completing the delisting process has been reduced from 137 calendar days (approximately 117 working days) to 76 working days,” the regulator said in a release.

Apart from reducing the timeline, the watchdog has decided to retain the reverse book building process for discovering the price of shares for the purpose of delisting.

Delisting would be considered successful only if at least 25 per cent of the public shareholders participated in the reverse book building process.

Besides, shareholding of the acquirer, together with the shares tendered by public shareholders, should reach 90 per cent of the company’s total share capital.

To ensure that a delisting plan has been decided in a fair manner, the board should approve the same only after due diligence process, for which it can appoint a merchant banker on behalf of the company and the promoter.

Further, the board should certify that the company is in compliance with applicable securities law and that it would be in the interest of shareholders.

Sebi said that an acquirer would have the option to delist the shares of the company directly through delisting regulations pursuant to triggering takeover norms.

“However, if the delisting attempt fails, the acquirer would be required to complete the mandatory open offer process under the Takeover Regulations and pay interest at the rate of 10 per cent per annum for the delayed open offer,” the release said.

Companies having paid up capital of not more than Rs 10 crore and networth that does not exceed Rs 25 crore as on the last day of the previous financial year would be exempted from following the Reverse Book Building process.

“The exemption would be available only if there was no trading in the shares of the company in the last one year from the date of the board resolution authorising the company to go for delisting, and trading of shares of the company has not been suspended for any non-compliance during the same period,” the release said.

According to Sebi, the stock exchange platform should be sued for offers made under Delisting, Buy Back and Takeover Regulations.

Depending on reasons put in writing, Sebi would consider relaxing the strict enforcement of delisting regulations.

Sebi came up with a discussion paper on delisting process in May and comments were received on aspects such as price discovery and shortening of the process.

Wilful defaulters to face curbs on fund mop-up frm capital mkt

To sternly deal with wilful defaulters, Sebi today decided to impose restrictions on such entities with respect to raising funds from capital markets.

Such measures are expected to further enhance the protection of investors in the securities market.

As part of new norms, the watchdog will impose restrictions on companies, promoters, and directors that are categorised as a ‘wilful defaulter’ from accessing the capital markets.

“The Board approved the proposal to review the policy in respect of restricting an issuer company/its promoter/ directors, categorized as wilful defaulter, from raising capital after going through the public consultation process,” Sebi said in statement after the board meeting.

At present, Sebi norms bar wilful defaulters from issuing convertible debt instruments. However, there is no restriction on such entities from raising funds from the capital market by way of public or rights issues, among others

Before finalising stricter regulations to deal with wilful defaulters, Sebi is expected to gather views from various stakeholders. The matter would also be discussed in the Primary Market Advisory Committee (PMAC).

The approval comes at a time when the amount of bad loans is on the rise in the banking system, mainly due to higher number of wilful defaulters.

To tighten the regulatory noose around wilful defaulters, the Reserve Bank has suggested to Sebi that such entities should be prevented from raising funds through capital markets.

Meanwhile, the government is planning to come out with a separate Bill in Parliament to deal with instances of wilful defaults in payment of bank loans.

Stringent action against the wilful defaulters in terms of attachment of properties under Sarfaesi Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act), change in management and other legal action against the promoters, among others, are under consideration.

Sebi approves one-time registration method for DPs

Simplifying procedural requirements, market regulator Sebi today to put in place a one—time single registration process for depository participants to operate on both CDSL and NSDL.

The initiative will streamline and simplify the registration process and will reduce the regulatory burden and save the cost and time of the applicants.

Sebi’s board today “approved the policy of granting single registration for the application of initial registration as well as the permanent registration for operating with both the depositories (CDSL and NSDL).”

Currently, the depository participants are required to obtain separate registration for both the depositories. Further, the applicants are granted initial registration for five years and then permanent registrations.

The Board also took note of other measures taken by Sebi in the last two years to simplify the process of registration and to reduce the regulatory burden.

Some of these measures include doing away with segment -wise registration for brokers, removing the requirement of separate registration with different stock exchanges and allowing one time registration instead of yearly approval.

Besides, Sebi board has approved a proposal to allow Venture Capital Investors (FVCIs) in Core Investment Companies (CICs) for infrastructure sector to help attract overseas funds in this space.

The move will remove any hindrance for investment in the infrastructure sector through the FVCI route and to boost the infrastructure sector in the country.

Besides, Sebi has accepted the recommendations of ‘Depository System Review Committee’ on risk management, financial inclusion and expanding the reach of depository services, Investor Protection Fund of the depositories, outsourcing policy and IT Infrastructure.

The committee was constituted to assess the depository system on the basis of CPSS-IOSCO principles so as to benchmark with global best practices and suggest areas for improvement.

Further Sebi’s board approved the proposal to frame suitable regulations for using secondary market infrastructure for public issuance (e-IPO).

Also, Sebi has given nod to the proposal to initiate public consultation process on re-classification of promoters and the regulator also approved proposal regarding issuance of partly paid shares and warrants by Indian companies.

Sebi comes out with new listing regulations

Bringing in comprehensive norms for various listed securities, Sebi has finalised detailed listing regulations aimed at ensuring better compliance levels and strengthening safeguards for investors.

The new regulations have been put in place after taking into consideration the need for having a framework to consolidate listing obligations and disclosure requirements for listed entities across all these securities at one place.

“This regulation would consolidate and streamline the provisions of existing listing agreements thereby ensuring better enforceability,” Sebi said in a statement after the board meeting where the framework was approved.

At present, there are separate listing agreements for different segments of the capital market.

The norms have been prepared after extensive consultations. A discussion paper on the matter was floated in May this year.

Overarching principles would be incorporated in the provisions of listing regulations to ensure that they serve as guidelines for compliance in case there is any ambiguity.

The enabling provision for annual information memorandum would be retained in the new regulations.

Under the revamped framework, listed entities would have to co-operate with intermediaries registered with Sebi such as debenture trustees and credit rating agencies.

Among others, listed entities have to compulsorily appoint Company Secretary as compliance officer except for units of mutual funds listed on stock exchanges.

Within six months of notifying these regulations, entities would have to “execute a shortened version of listing agreement”. Such a mechanism has been put in place to ensure since listing agreement is a contractual pact between the stock exchange and listed entity.

There would be converged provisions for specified securities (equity segment) listed on Main Board and SME platform with necessary carve-outs for SMEs.

For redressal of investor grievances, listed entities would have to mandatorily register with SCORES. All filings by listed entities have to be made electronically.

The new norms would be applicable for equity, non- convertible debt securities, non-convertible redeemable preference shares, Indian Depository Receipts, securitised debt instruments and units issued by mutual fund schemes, among others.

The listing regulations have been divided into three parts — substantive provisions incorporated in the main body of regulations, procedural requirements in the form of schedules and various formats/forms of disclosures to be specified by Sebi through circulars.

Various changes have also been made to provide clarity about the regulations.

Such changes include removal of dichotomy regarding utilisation of issue proceeds, aligning connected provisions pertaining to disclosures on website and issuing advertisements, disclosures in annual report, and operational modalities in manner of review of audit reports with modified opinion.

Requirements which are in the nature of continuous disclosure and obligations have been shifted and now incorporated in the listing regulations.

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