Analysis of Provisions, Offences
&Penalties
[ICLS Mid Career Training Programme] 07.01.2013 | Session II
SEBI Prohibition of Insider TradingRegulations
By
MANOJ KUMARAssistant Vice President
Corporate Professionals Capital Private Limited
• Investigation
• Prohibition on dealing, communicating or counseling
• Key Terms
• Procedure for Investigation
• Direction by SEBI
• Disclosures to be made
• Action in case of Default
• Model Code of Conduct
Agenda
WHAT IS INSIDER TRADING????
INSIDER TRADINGmeans
dealing in the securitiesby an Insider,
who has the knowledge ofmaterial “inside” information
of the companywhich is not available in the
Public domain.
is wasOR
connected with the company OR
deemed to have been connected with the company
AND
is expected to have access toUNPUBLISHED PRICE SENSITIVE INFORMATION
Has Received Has Had Access TO
UNPUBLISHED PRICE SENSITIVE INFORMATION
OR
Any Person
Who
OR(ii)
(i)
INSIDER - REGULATION 2(e)
is a director under section 2(13) of the Companies Act, 1956, or
deemed to be a director of that company under section 307(10) of the Act
may reasonably to have an access to Unpublished Price Sensitive Information
Professional relationship
Business relationship
Any Person
an officer an employee
Who
OR
Whether TEMPORARY or PERMANENT
Holds the position Involving
or or
AND
CONNECTED PERSON
“CONNECTED PERSON”
Shall mean
any person
who is a connected person
prior to an act of insider trading
EXPLANATION TO CONNECTED PERSON
SIX MONTHS
6
6
6
6
Price Sensitive Information means:
information which relates directly or indirectly
to a company
AND
which if published is likely to
materially affect the price of securities of company.
PRICE SENSITIVE INFORMATION-REGULATION 2(ha)
DEEMED PRICE SENSITIVE INFORMATION
Periodical financial results of the company;
Intended declaration of dividend;
Issue of securities or buy back of securities;
Major expansion plan OR Execution of new projects;
Amalgamations, merger, takeovers;
Disposal of whole or substantial part of the undertaking;
Changes in policies, plans or operations
PRICE SENSITIVE INFORMATION- AS PER CLAUSE 36 LISTING AGREEMENT
Change in the general character or nature of business.
Disruption of operations due to natural calamity.
Commencement of Commercial Production/ Commercial Operations.
Litigations/ dispute with a material Impact.
Revisions in Ratings.
PRICE SENSITIVE INFORMATION- AS PER CLAUSE 36 LISTING AGREEMENT
Any other information having bearing on the operation/ performance of the Company as well as price sensitive information which includes but not restricted to;
• Change in market lot / sub-division ;• Voluntary delisting by the company ;• Forfeiture of shares;• Alteration in terms of any securities ;• Information regarding securities issued abroad ;• Cancellation of dividend/ rights/ bonus etc.
OFFICER OF A COMPANY
Means
Person defined in Section 2(30) of the
Companies Act, 1956
Section 2(30) : "officer" includes
any director, manager or
secretary, or any person in
accordance with whose directions
or instructions the Board of
directors or any one or more of the directors is
or are accustomed to
act.
Includes
Auditor of the Company
OFFICER OF A COMPANY – REGULATION 2(g)
UNPUBLISHED -REGULATION 2(k)
Information which is not published by the company or its agents and is not specific in nature.
ExplanationSpeculative reports in print or electronic media shall not be considered as published information.
DEALING IN SECURITIES - REGULATION 2(d)
“Dealing In Securities” means an act of Subscribing, Buying, selling
oragreeing to subscribe, buy, sell
or deal in any securitiesby any person
either
as principal or agent;
NO INSIDER
On Other’s behalf Either on his own behalf
DEAL IN SECURITIES OF THE COMPANY
or
shall
IN POSSESSION OF ANY UPSI
when
COMMUNICATE / COUNSEL / PROCURE
Directly Indirectly or
ANY UPSI TO ANY PERSON
or
PROHIBITION ON INSIDER-REGULATION 3
Any communication which is required in the
Ordinary course of business, OR
Profession, OR
Employment, OR
Under any law.
EXCEPTION TO REGULATION 3
NO COMPANY
Deal in Securities of
or
IN POSSESSION OF ANY
Other company Associate of that other company
UNPUBLISHED PRICE SENSITIVE INFORMATION
WHEN
SHALL
PROHIBITION ON COMPANY- REGULATION 3A
NON APPLICABILITY OF REGULATION 3A
Proper arrangement in place to block the dissemination of UPSI; AND
Adequate Procedures are in place to demarcate the persons having UPSI & persons dealing in securities; AND
The information was not so communicated and no such advice was so given; OR.
The acquisition was in line with the SEBI
Takeover Regulations
PROVISIONS RELATING TO VIOLATION – REGULATION 4
Any insider, whodeals in securities
in contravention of theprovisions of Regulation 3 or 3A
shall beguilty of Insider Trading..
POWER TO MAKE INQUIRIES AND INSPECTION- REGULATION 4A
If the Board Suspects any person has violated the provisions of these Regulations
It may Make enquiries, or
appoint person to inspect books & records of such persons
Form a prima facie opinion , whether there is violation of these regulations
BOARD’S RIGHT TO INVESTIGATE -REGULATION 5
Where the Board, is of prima facie opinion that it is necessary to investigate and inspect
books of account, documents ofan insider or any person
On the basis of compliant received form investors, intermediaries or any other person,
Or suo-motu upon its own knowledge, to protect the interest of investors, it may
appoint an INVESTIGATING AUTHORITY
REGULATION 6 to 9
On Complaints/ Suo-moto
Appointment of
Invtg. Auth.
Notice IssuedInvestigation
Started
To provide all assistance
On ConclusionReport to
Board
Findings to suspected
person
Shall Reply within 21 days
Board will Issue
directions
REGULATION 6 to 9
Not to deal in securities ;
Not to dispose of any of the securities acquired in violation of these regulations;
Not to communicate or counsel any person to deal in securities;
Declaring the transaction(s) in securities as null and void;
Deliver the securities back to the seller :
To transfer proceeds to the investor protection fund of a recognized stock exchange.
REGULATION 14
• Action under Section 11 of SEBI Act, 1992• Directions under Section 11(4) (suspension of Trading & debarment)
• Directions under section 11B of the SEBI Act• Cease and desist order in proceedings under section 11D of the
Act;• Penalty for failure to furnish information, return etc. under section
15A of the SEBI Act, 1992• Monetary penalties under section 15G of SEBI Act, 1992 (upto 3X
or Rs. 25 Cr. whichever is higher)• Criminal prosecution under section 24 of the SEBI Act (ten year
imprisonment or fine upto Rs. 25 cr.)
Regulation No.
Particulars By whom To whom Time limit
Form
13(1) On the acquisition of >5%
Any Person Company 2 working
days
A
13(2) Disclosure of shares or voting rights held and positions taken in derivatives by such person and his dependents (as defined by the company) on becoming the Director or officer
Director or officer
Company 2 working
days
B
13(2A) Disclosure of shares or voting rights on becoming the promoter or part of promoter group
Promoter or person
belonging to promoter group
Company 2 working
days
B
13(3) Change in shareholding of (±) >2% from the last disclosure made under sub regulation (1) or under this sub regulation.
Persons already holding more
than 5%
Company 2 working
days
C
DISCLOSURE REQUIREMENT
Regulation No.
Particulars By whom To whom Time limit
Form
13(4) Change in holding in excess of Rs.5 Lakh in value or 25,000 shares or 1% of total shareholding or voting rights from the last disclosure made under sub regulation (2) or under this sub regulation.
Director or officer
Company as well as Stock
Exchange
2 working
days
D
13(4A) Change in holding in excess of Rs.5 Lakh in value or 25,000 shares or 1% of total shareholding or voting rights from the last disclosure made under Listing Agreement or under sub regulation (2A) or under this sub regulation.
Promoter or person
belonging to promoter
group
Company as well as Stock
Exchange
2 working
days
D
13(6) On the receipt of disclosure under 13(1), 13(2), 13(2A), 13(3), 13(4) and 13(4A)
Company Stock Exchange
2 working
days
A or B or C or D as the case
may be
DISCLOSURE REQUIREMENT
CODE OF CONDUCT TO BE ABIDE BY
ALL LISTED COMPANIESOrganizations Associated with Securities Markets including:• All intermediaries• AMC and trustees of mutual funds;• The Self Regulatory Organizations;• The Stock Exchanges / Clearing House /
Corporations;• The Public Financial Institutions• The Professional Firms
Such as Auditors, Accountancy Firms, Law Firms, Analysts, Consultants, etc., assisting or Advising Listed Companies
SCHEDULES – MODEL CODE OF CONDUCT
SCHEDULE IMODEL CODE OF CONDUCT
FOR PREVENTION OF INSIDER TRADINGPART A - FOR LISTED COMPANIES
PART B – FOR OTHER ENTITIESSCHEDULE II
CODE OF CORPORATE DISCLOSURE PRACTICESFOR
PREVENTION OF INSIDER TRADING
IMPORTANT TERMS- NEED TO KNOW
• PSI should be disclosed only to those within the company who need the information to discharge their duty.
• Limited access to confidential information• Files containing confidential information shall
be kept secure.• Computer files must have adequate security of
login and pass word etc.
PRE CLEARANCE OF TRADES
• All D/O/E of the Co and their dependants as defined by the company who intend to deal in the securities beyond a limit should pre-clear the transactions.
• An application to the Compliance officer indicating• The estimated number of securities that the D/O/E and
their dependants intends to deal in,• The details as to the depository with which he has a
security account,• The details of securities in such depository mode.• Other details as may be required by any rule made by
the company in this behalf.
TRADING WINDOW
• Company shall specify a trading period, to be called "Trading Window", for trading in the company’s securities.
• The trading window shall be closed during the time the Price Sensitive information is un-published.
• When the trading window is closed, the D/ E shall not trade in the company's securities in such period.
• The trading window shall be opened 24 hours after the Price Sensitive Information is made public.
RESTRICTED /GREY LIST
To restrict trading in certain securities and designate such list as restricted / grey list.
Client Companies for which any assignment or appraisal report or credit rating assignments are going on.
Any security which is purchased or sold by the organisation / firm on behalf of its clients / schemes of mutual funds, etc. shall be put on the restricted / grey list.
As the restricted list itself is a highly confidential information, It shall be maintained by CO.
CHINESE WALL
• "Chinese Wall" policy demarcates “inside areas” from "public areas".
• Those areas having access to confidential information, considered “inside areas” and areas which deal with sales / marketing / investment considered "public areas".
• The employees in the inside area shall not communicate any PSI to anyone in public area.
• In exceptional circumstances employees from the public areas may be brought "over the wall" and given confidential information on the basis of "need to know" criteria, under intimation to the CO
Compliance Officer means ‘Senior Level Employee’ who shall report to the MD / CEO.
The CO shall be responsible for
- setting forth policies, procedures
- monitoring adherence to the rules for the preservation of “PSI”,
- pre-clearing of designated employees’ and their dependents’ trades
- monitoring of trades and the implementation of the code of conduct
under the overall supervision of the Board of the listed company.
The CO shall maintain a record of the designated employees and any
changes made in the list of designated employees.
To Provide clarifications regarding the SEBI (Prohibition of Insider
Trading) Regulations, 1992 & the company's code of conduct to the Company’s employees.
COMPLIANCE OFFICER (CO)
Lastly………….
It is easier to identify the beneficiaries of insider dealing
Butthe extent of losses occurred to the
general investor isimpossible to calculate
Thanking you …
Manoj KumarAssistant Vice President
Corporate Professionals Capital Private Limited
D-28, South Extension –I, New Delhi-110 049Ph: +91.11.40622200; Fax: +91.11.40622201; E: [email protected] | M: +91.9910688433