QUESTION
M/s AAA Limited is a public listed company. The company is undergoing into a high growth phase and its shares are highly traded in the recognized stock exchanges. You are the Company Secretary of M/s AAA Limited. It is reported to you on 4th January 2023 that one of the members from promoter group has made trading of approx. ₹ 20 lakh in the shares of M/s AAA Limited on 30th December 2022. As a Company Secretary of M/s AAA Limited, state the compliance requirements applicable with regard to trading in the shares of company by one of the members from promoter group.
APPLICABLE PROVISIONS /REGULATIONS SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS 2015
DISCLOSURES OF TRADING BY INSIDERS (REGULATION 6)
General Provisions
(1) Every public disclosure under this Chapter shall be made in such form as may be specified.
(2) The disclosures to be made by any person under this Chapter shall include those relating to trading by such person’s immediate relatives, and by any other person for whom such person takes trading decisions.
NOTE: It is intended that disclosure of trades would need to be of not only those executed by the person concerned but also by the immediate relatives and of other persons for whom the person concerned takes trading decisions. These regulations are primarily aimed at preventing abuse by trading when in possession of unpublished price sensitive information and therefore, what matters is whether the person who takes trading decisions is in possession of such information rather than whether the person who has title to the trades is in such possession.
(3) The disclosures of trading in securities shall also include trading in derivatives of securities and the traded value of the derivatives shall be taken into account for purposes of this Chapter:
Provided that trading in derivatives of securities is permitted by any law for the time being in force.
(4) The disclosures made under this Chapter shall be maintained by the company, for a minimum period of five years, in such form as may be specified.
DISCLOSURES BY CERTAIN PERSONS. (REGULATIONS 7)
(1) Initial Disclosures.
(a). Every promoter, key managerial personnel and director of every company whose securities are listed on any recognised stock exchange shall disclose his holding of securities of the company as on the date of these regulations taking effect, to the company within thirty days of these regulations taking effect;
(b). Every person on appointment as a key managerial personnel or a director of the company or upon becoming a promoter shall disclose his holding of securities of the company as on the date of appointment or becoming a promoter, to the company within seven days of such appointment or becoming a promoter.
(2) CONTINUAL DISCLOSURES.
(a) Every promoter, employee and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as may be specified;
(b) Every company shall notify the particulars of such trading to the stock exchange on which the securities are listed within two trading days of receipt of the disclosure or from becoming aware of such information.
Explanation. It is clarified for the avoidance of doubts that the disclosure of the incremental transactions after any disclosure under this sub-regulation, shall be made when the transactions effected after the prior disclosure cross the threshold specified in clause (a) of sub-regulation (2).
DISCLOSURES BY OTHER CONNECTED PERSONS
(3) Any company whose securities are listed on a stock exchange may, at its discretion require any other connected person or class of connected persons to make disclosures of holdings and trading in securities of the company in such form and at such frequency as may be determined by the company in order to monitor compliance with these regulations.
NOTE: This is an enabling provision for listed companies to seek information from those to whom it has to provide Unpublished Price Sensitive Information. This provision confers discretion on any company to seek such information. For example, a listed company may ask that a management consultant who would advise it on corporate strategy and would need to review unpublished price sensitive information, should make disclosures of his trades to the company.
ANSWER: In case of insider trading in the shares of the company by promoter or member of the promoter group or by any director of the company, the under given provision of SEBI (Prohibition of Insider Trading) Regulations 2015 would be relevant which are as under:
REGULATION 7(2) - CONTINUAL DISCLOSURES
a) Every promoter, member of promoter groups and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of Ten Lakh Rupees or such value as may be specified;
b) Every company shall notify the particulars of such trading to the stock exchange on which the securities are listed within two trading days of receipt of the disclosure or from becoming aware of such information. Within 2 trading days of such transaction (Transaction type include buy/sales/pledge/revoke/ invoke) The above disclosures shall be made in such form and such manner as specified by SEBI from time to time.
Since the transactions were made on 30th December 2022 while it is reported to the company after the expiry of 2 days, it would be non-compliance of the above referred provisions by the members of the promoters group. It would be appropriate that the company report such transactions to the concerned stock exchange within 2 days of the receipt of such information i.e., 6th January 2023.
DISCLAIMER: The case study presented here is only for sharing information with readers. In case of necessity do consult with professionals.
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