Introduction
Recently, SEBI amended the SEBI (Prohibition of Insider Trading) Regulations, 2015, effective June 25, 2024, with an aim to curb insider trading, which involves trading of a company’s shares based on confidential information, and to enhance flexibility while maintaining fairness, transparency and compliance in the market.
The key amendments are listed herein below:-
1. Reduced Trading Commencement Period (Regulation 5(1)):
SEBI, with an aim to streamline trading activities while ensuring adherence to insider trading norms, has now reduced the waiting period for insiders to commence trading from 6 months to 120 calendar days, from public disclosure.
1.1. Definition of Insider:
As per Regulation 2(1)(g), an “insider” means any person who is a connected person or in possession of or having access to unpublished price sensitive information (UPSI).
2. Removal of 12-Month Trading Requirement (Regulation 5(2)(iii)):
The requirement mandating a minimum trading period of 12 months within trading plans under Regulation 5(2)(iii) of the SEBI (Prohibition of Insider Trading) Regulations, 2015, . has been eliminated, allowing insiders to trade over shorter durations as per market conditions; simplifying compliance and enhancing flexibility.
3. Expanded Parameters for Trade Execution (Regulation 5(2)(v)):
SEBI has now clearly defined the parameters for each trade, including the trade value or the number of securities, the nature of the trade, a timeframe, not exceeding five consecutive trading days, and price limits. For buy trades, the upper price limit must be within 20% higher than the previous day's closing price, while for sell trades, the lower price limit must be within 20% lower than the previous day's closing price, rounded off to the nearest numeral.
4. Clarification on Trade Splitting Duration (Regulation 5(2)(v)):
SEBI, to uphold regulatory guidelines and ensure fair trading practices, clarifies that while insiders can split trades over different dates, there's a maximum duration limit to prevent misuse. "Trade splitting" refers to the practice where an insider divides a large transaction involving buying or selling securities into smaller parts that are executed over multiple dates or time intervals. .
5. Exceptions to Trading Plan Deviations (Regulation 5(4)):
Insiders must strictly adhere to their trading plans, except in cases of permanent incapacity, bankruptcy, or operation of law. This amendment aims to maintain clarity and fairness in trading practices.
6. Price Limit Enforcement for Trades (Regulation 5(4)):
SEBI mandates that trades must only proceed if the execution price of the security falls within set limits.. If trades fail due to inadequate liquidity, insiders must notify the compliance officer within 2 trading days after the trading plan's tenure ends, providing reasons and supporting documents. The compliance officer then submits this to the Audit Committee for a decision on the validity, which is then promptly communicated to the relevant stock exchanges. If the submissions are not accepted, the compliance officer must initiate actions as per the Code of Conduct.
7. Compliance Officer's Approval Timelines (Regulation 5(5)):
The amendments require the compliance officers to approve or reject trading plans within 2 trading days of receipt; with aims to expedite the approval process and enhance responsiveness.
Conclusion
SEBI's recent amendments aim to enhance operational flexibility and compliance in insider trading regulations. By reducing waiting periods and eliminating certain requirements, SEBI enables insiders to adjust trading strategies more swiftly. These measures also strengthen transparency and market integrity.
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