1. Companies Act, 2013
Section 195 (1) - No person including Director, KMP, Officer of the company shall enter
into insider trading.
Nothing contained in this sub sectionshall apply to communication required in the
ordinary course of business of the company.
Imprisonment – 5 Years
Fine – Least Rs. 5 Lakh and maximum to Rs. 25 Crore / Three times the profit made from
such transaction whichever is higher
SEBI (Prohibitionof Insider Trading) Regulations, 2015
Important Definitions
1. Clause 2 (1) (d) (i) – any person who is or has during last six month prior to
concern act been associated with a company by any following way:-
(a) Contractual
(b) Fiduciary
(c) Employment
(d) By being a Director
(e) By being a Officer
(f) By being a professional
Allows such person to access any unpublished price sensitive information.
2. Clause 2 (1) (d) (ii) – following persons are deemed to be connected persons
unless the contrary is established:-
(a) Immediate relative of connected persons specifiedin Clause 2 (1) (d) (i) above.
(b) Holding/associate/subsidiary Company.
(c) Intermediary specified in section12 of the Act or an employee or director
thereof
(d) Investment company, trustee company, asset management company or an
employee or director thereof
(e) Official of a stock exchange or of clearing house or corporation
(f) Member of board of trustee of mutual fund or its employee
2. (g) Member or director of public financial institution
(h) Banker
(i) Concern trust, HUF, firm, company etc where the director/immediate relative
of director, banker have more than 10% holding.
3. Clause 2 (1) (e) – “generally available information” means information that is
accessible to the public on a non-discriminatory basis.
4. Clause 2(1) (n) – “unpublished price sensitive information” means any
information which is not generally available which upon becoming generally
available, may affect the prices of the securities such as:-
(a) Financial results
(b) Dividends
(c) Change in capital structure
(d) Mergers, de-mergers, acquisitions, de-listings, disposals and expansion of
business and such other transactions
(e) Changes in key managerial personnel
(f) Material events in accordance with the listing agreement.
Restrictionon communication and Trading by Insiders
5. Clause 3 (1) - No insider shall communicate any unpublished price sensitive
information, relating to a listed or proposed to be listed company except such
communication is in furtherance of legitimate purposes, performance of duties or
discharge of legal obligation.
6. Clause 3 (2) – No person shall procure any price sensitive information from any
insider except in furtherance of legitimate purposes, performance of duties or
discharge of legal obligations.
7. Clause 3 (3) - Notwithstanding anything contained in these regulations UPSI can
be communicated if :-
(a) It entails an obligation to make an open offer under the takeover regulations
(b) Does not entails obligation of open offer but BOD thinks that proposed
transaction is in the best interests of the company, then this information is
made generally available least 2 days prior to the proposed transactions.
Trading when in possessionof unpublished price sensitive information
8. Clause 4 (1) – No insider shall trade in securities while in possessionof
unpublished price sensitive information
Except cases where he can prove that:-
3. (a) Transaction is off-market transfer between promoters who have same
unpublished price sensitive information without being in breach of regulation
3.
(b) In case of non-individual insiders:-
The individuals taking trading decisions are different from the
individuals in possession of price sensitive information and such
persons making trading decision were not in possessionof price
sensitive information.
Appropriate measures/arrangements were in place to insure that these
regulations were not breached
Trades were according to the trading plan formulated as per regulation
5.
Trading Plan
9. Clause 5 (1) – A Trading plan should be formulated by the insider, which should
be duly approved by the compliance officer and put forward for public disclosure
10.Clause 5 (2) :-
(a) trading should not start within 6 months from the date of disclosure of trading
plan (Clause 5 (2) (i)
(b) Insider is not allowed to trade between 20th day before 31st March of every year
till 2nd day of disclosure of financial results for such financial year. Clause 5
(2) (ii)
(c) trading plan be for period of not less than 12 months Clause 5 (2) (iii)
(d) One trading plan should not overlap an existing trading plan 5 (2) (iv)
(e) Trading plan should state value of trades to be affected or the number of
securities to be traded and their intervals or dates on which such trades shall be
affected.
(f) If the trading is done my manipulating the time of release of price sensitive
information to make the trading lucrative. Such act will initiate proceeding for
alleged breach of SEBI Insider trading regulations.
11.Clause 5 (4) - Once the trading plan is approved it has to be mandatorily fulfilled
without any deviation from the plan or trading outside the scope of the plan.
Provided that if the unpublished price sensitive information is not made public
then above regulation is not applicable and the compliance officer shall confirm
that the commencement of trading plan is ought to be deferred.
12.Clause 5 (5) – Approved trading plan would be notified by the compliance officer
to the stock exchange where the securities are listed.
4. Disclosure ofTrading By Insider
13.Clause 6 (2) – Disclosure under these rules are not to be made only by person
concerned but also for its relatives for whom the person concerned takes trading
decisions.
14.Clause 6 (3) – Trading in securities include trading in derivative of the securities,
the traded value of the derivative shall be taken into account for purpose of this
chapter.
15.Clause 6 (4) - Disclosure made under this chapter shall be maintained for a
minimum period of 5 years.
Initial Disclosure
16.Clause 7 (1) (a) – Every promoter, KMP, Director of a listed company shall
disclose his shareholding to the company as on the date of these regulations taking
place.
17.Clause 7 (1) (b) – Every person appointed as KMP, Director or being becoming a
promoter shall disclose its holding to the company within 7 days of its
appointment or becoming promoter.
Continual Disclosure
18.Clause 7 (2) (a) – Every promoter, employee, director of every company shall
disclose to the company about securities acquired or disposed in a quarter of
calendar if the aggregate of trade is in excess of 10 Lac within 2 working day.
19.Clause 7 (2) (b) – Within 2 days of receiving of such disclosure as per Clause 7 (2)
(a) by the company, company shall notify the particular of such trading to the
stock exchange.
20.Clause 7 (3) – Company may require such disclosure as per Clause 7 (2) (a) by
any other connected person in order to monitor compliance with these regulations
Disclosure On Website
21.Clause 8 (1) – Board of every listed company on its website shall disclose a code
of practices and procedures for fair disclosure of Unpublished price sensitive
information
22.Clause 8 (1) – Every such code of practices and procedure as per Clause 8 (1) any
amendment thereto shall be intimated to the stock exchange where the securities
are listed.