Comprehensive FAQs: SEBI PIT Regulations
On April 29, 2021, the Securities and Exchange Board of India [SEBI] issued a comprehensive list of FAQs to provide greater clarity on several concepts related to the SEBI (Prohibition of Insider Trading) Regulations [PIT Regulations]. The FAQs now issued include all previous guidance notes and FAQs issued by SEBI till now.
The FAQs covered questions regarding Trading, Trading Plan, Structured Digital Database, Disclosures, Pledge, Pre — Clearance, Trading Window Closure, Contra-trade, etc.
Here is a list of some of the significant clarifications issued by SEBI:
▪ Transmission of shares: Norms relating to disclosure requirements shall be applicable on the transmission of Shares but exempted from provisions of trading window closure, pre-clearance and contra trade.
2. Structured Digital Database
▪ Applicable to Listed Companies, Intermediaries and Fiduciaries who handle unpublished price sensitive information [UPSI] of a Listed Company in the course of business operations.
▪ The Listed Company in its database shall record the nature of UPSI shared, details of the Sender and Receiver (both Individual and Entity recipient), along with their PAN or another unique identifier.
▪ The Intermediary / Fiduciary in its database shall record nature of UPSI received/shared, details of the Company whose UPSI is received/shared details of individual Sender and Receiver along with their PAN or another unique identifier.
▪ Whether within India or outside India, databases/servers provided by third-party vendors will be considered outsourced.
▪ There is no requirement to disseminate the list of UPSI on the website of the company.
▪ Records shall be updated in the Structured Digital Database as and when the information gets transmitted (irrespective of whether the information is shared within or outside the Company).
3. Pledge of Securities:
▪ The term Trading would include creation/invocation/revocation of the pledge.
▪ Market value on the date of pledge/revoke transaction should be considered for disclosures under PIT Regulations.
▪ When the lender sells the shares pledged by a designated person, the transaction can be represented as an invocation in the disclosure.
4. Trading when in possession of UPSI
▪ Any person who is in possession of UPSI will be termed as an Insider, irrespective of the Persons is classified as a Designated Person by the Company or not.
▪ An Insider is prohibited from trading while in possession of UPSI.
5. Trading Plan:
▪ Trading as per Trading Plan can be done if, UPSI which was in existence at the time of formulation of such Plan, has been made generally available. In case the UPSI is not generally available, then no trading shall be done.
▪ If at the time of formulation of the trading plan, there was no UPSI or later on a new UPSI was generated, then the trading can be carried out as per the trading plan, even if the new UPSI has not been made generally available.
▪ Upon the filing of disclosure under Regulation 7(2)(b) of SEBI Regulations, the disclosure of the incremental transactions after any disclosure shall be made when the trades effected after the prior disclosure cross the threshold specified in Clause (a) of Sub-Regulation (2) of Regulation 7. Hence, the subsequent disclosure will be due when the next Rs. 10 lacs limit is breached.
▪ For filing of disclosures, the market rate of the trades shall be considered for calculating the threshold limit. The market price shall not be subtracted by subtracting Brokerage, Commission etc., i.e.net of taxes and all transaction charges.
▪ The disclosure shall be filed irrespective of the acquisition mode except for the shares acquired via bonus issue or received under a Scheme.
7. Pre — Clearance:
▪ No Pre — Clearance shall be required for the exercise of Options.
▪ For cashless exercise, Pre — Clearance shall be required because the exercise of options and sale of shares acquired under ESOP are taking place simultaneously.
▪ Off-market transfer of securities would require pre-clearance.
8. Trading Window:
▪ When the Trading Window is closed, any earlier Pre–Clearance obtained when the Trading Window was open would be invalid once the Trading Window is closed.
▪ The Compliance Officer shall actively communicate the closure of the trading window to the designated persons.
▪ The Trading Window shall be closed when the Compliance Officer determines that a Designated Person or class of Designated Persons can reasonably be expected to possess UPSI.
9. Contra Trade:
▪ Any trading opted by a person under a trading plan can be done only to the extent, and in the manner disclosed in the plan accordingly, contra trade provisions shall not be applicable in such cases.
▪ Any derivative contract that is physically settled on expiry shall not be considered to be a contra trade. However, closing the contract before expiry (i.e. cash-settled contract) would mean taking a contra position.
▪ Buyback offers, open offers, rights issues, FPOs, bonus, exit offers etc., of a listed company are available to designated persons also. Restriction of ‘contra-trade’ shall not apply in respect of such matters.
▪ The Contra Trade restrictions shall apply in case of a subsequent sale of Shares (done within six months of acquisition) which were earlier acquired through rights issue / Further Public Offer.
▪ Contra Trade restrictions would be applicable on a collective basis on the Designated person and their Immediate Relatives.
▪ Contra trade restrictions are applicable date wise and not on Share wise.
▪ The compliance officer may be empowered to grant relaxation from a strict application of such restriction for reasons to be recorded in writing provided that such relaxation does not violate these regulations.
10.Designated Person and Immediate Relatives:
▪ SEBI Regulations specifies that all Promoters of Listed Companies and Promoters who are Individuals or Investment Companies for Intermediaries or Fiduciaries shall be included as Designated Person.
▪ The board of directors of the company shall be the approving authority for trades done by the compliance officer or his immediate relatives.
▪ A spouse is presumed to be an ‘immediate relative’ unless rebutted so.
To read the full text of the FAQs, please click here.