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Insider Trading - An Overview (Part II)

CMA. CS. Sanjay Gupta 
on 17 October 2011

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Disclosure requirements

Initial Disclosure by member

Any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company/Compliance Officer in Form A, the number of shares or voting rights held by such person, on becoming such holder, within 2 working days (Substituted for “4 days” vide SEBI Notification No. LAD-NRO/GN/2008/29/44801, dated 19.11.2008) of the receipt of intimation of allotment of shares or the acquisition of shares or voting rights, as the case may be.

 

Initial Disclosure by director or officer

Every director or officer of a listed company shall disclose to the Company/Compliance Officer in Form B, the number of shares or voting rights held [and positions taken in derivatives by him and his dependents (as defined by the company)] within 2 (Two)  working days of becoming a director or officer of the company.

 

Continual Disclosure by member

Any person who holds more than 5% shares or voting rights in any listed company shall disclose to the Company/Compliance Officer in Form C within 4 working days of the receipt of intimation of allotment of shares, or the acquisition or sale of shares or voting rights, as the case may be, the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below 5%, if there has been change in such holdings from the last disclosure and such change exceeds 2% of total shareholding or voting rights in the company.

  

Continual Disclosure by director or officer

Every director or officer of a listed company, shall disclose to the Company/Compliance Officer and the stock exchange where the securities are listed in Form D  within 2 working days of the receipt of intimation of allotment of shares, or the acquisition or sale of shares or voting rights, as the case may be, the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings of such person and his dependents (as defined by the company) from the last disclosure made under sub-regulation (2) or under this sub-regulation, and the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower.

 

Disclosure by company to stock exchanges

Every listed company, within 2 days (Substituted for “five days” vide SEBI Notification No. LAD-NRO/GN/2008/29/44801, dated 19.11.2008) of receipt of above disclosures shall disclose the same to all stock exchanges on which the company is listed.

 

Reporting requirements for transactions in securities.

All directors/designated employees/partners of the organisation/firm shall be required to forward following details of their securities transactions including the statement of dependent family members to the compliance officer:—

(a) all holdings in securities by directors/officers/designated employees/partners at the time of joining the organisation.

(b) periodic statement of any transactions in securities (the periodicity of reporting may be defined by the firm or organisation. The organisation/firm may also be free to decide whether reporting is required for trades where pre-clearance is also required.

(c) annual statement of all holdings in securities.

 

Requirement for specifying period for closing of trading window.

Every listed company shall specify a trading period, to be called "Trading Window", for trading in  the company's securities.

The trading window shall be, inter alia, closed at the time of:—

(a) Declaration of Financial results (quarterly, half-yearly and annual)

(b) Declaration of dividends (interim and final)

(c) Issue of securities by way of public/rights/bonus etc.

(d) Any major expansion plans or execution of new projects

(e) Amalgamation, mergers, takeovers and buy-back

(f) Disposal of whole or substantially whole of the undertaking

(g) Any changes in policies, plans or operations of the company

 

Time period for closing and opening of trading window

The time for commencement of closing of trading window shall be decided by the company. When the trading window is closed, the employees/directors shall not trade in the company's securities in such period. The trading window shall be opened 24 hours after the information mentioned above is made public. In case of ESOPs, exercise of option may be allowed in the period when the trading window is closed. However, sale of shares allotted on exercise of ESOPs shall not be allowed when trading window is closed.

 

Pre clearance of trades

All directors/officers/designated employees of the company who intend to deal in the securities of the company (above a minimum threshold limit to be decided by the company) should pre-clear the transactions as per the pre-dealing procedure as described hereunder.

 

Procedure for pre-dealing

1. An application may be made in form specified by the company to the Compliance Officer indicating the estimated number of securities that the designated employee/officer/director intends to deal in, the details as to the depository with which he has a security account, the details as to the securities in such depository mode and such other details as may be required by any rule made by the company in this behalf.

2. An undertaking shall be executed in favour of the company by such designated employee/director/ officer incorporating, inter alia, the following clauses, as may be applicable:

(a) that the employee/director/officer does not have any access or has not received price sensitive information up to the time of signing the undertaking.

(b) that in case the employee/director/officer has access to or receives price sensitive information after the signing of the undertaking but before the execution of the transaction he/she shall inform the Compliance officer of the change in his position and that he/she would completely refrain from dealing in the securities of the company till the time such information becomes public.

(c) that he/she has not contravened the code of conduct for prevention of insider trading as notified by the company from time to time.

(d) that he/she has made a full and true disclosure in the matter.

3. Order in respect of securities of the company shall be executed within one week after the approval of pre-clearance is given. If the order is not executed within one week after the approval is given the employee/director must pre clear the transaction again.

4. Investments in securities shall be hold for a minimum period of 30 days in order to be considered as being held for investment purposes.

5. In the case of subscription in the primary market (initial public offers), the above mentioned entities shall hold their investments for a minimum period of 30 days. The holding period would commence when the securities are actually allotted.

6. All directors/officers/designated employees who buy or sell any number of shares of the company shall not enter into an opposite transaction i.e. sell or buy any number of shares during the next six months following the prior transaction. All directors/officers/designated employees shall also not take positions in derivative transactions in the shares of the company at any time.

7. If the sale of securities is necessitated by personal emergency, the holding period may be waived by the compliance officer after recording in writing reasons in this regard.

 

SEBI’s clarification on applicability of insider trading norms on ESOP

SEBI has issued a clarification that the six-month restriction for directors and employees to transact in shares of a company is only intended for trading on stock exchanges and not applicable to the exercise of employee stock options (ESOPs) and sale of these shares.

Employees can subscribe to ESOPs, even if they have sold shares during the previous six months, but the restriction on market purchases for the next six months would be applicable, once shares bought through ESOPs are sold. Employees can sell shares in case of emergency on approval from the company’s compliance department. Employees are free to trade in Nifty or Sens*x futures, subject to the company’s code of conduct.

SEBI has clarified that the minimum holding period of 30 days while buying shares through an initial public issue would not be applicable to bonus, rights share issues and ESOPs; this restriction is limited to IPOs. The company is free to decide the holding period for the other issue of shares.

 

Role and duties of the Compliance Officer under the SEBI (Prohibition of Insider Trading) Regulations, 1992

1. To set forth policies, procedures, monitoring adherence to the rules for the preservation of "Price Sensitive Information", monitoring the transactions, whether pre-clearance of designated employees and their dependents' trades are executed within one week and the implementation of the code of conduct.

2. To report to Managing Director/Chief Executive Officer.

3. To suggest any improvements required in the policies, procedures, etc. to ensure effective implementation of the code.

4. To maintain a register of record of all the directors and persons covered within the ambit of the term 'designated employee' and any changes in the same.

5. To assist all the employees in addressing any clarifications regarding the SEBI (Prohibition of Insider Trading) Regulations, 1992 and the Company's code of conduct.

6. To maintain a list/register of all information termed as 'price sensitive information'.

7. To maintain a record of names of files containing confidential information deemed to be price sensitive information and persons in charge of the same.

8. To ensure that computer files are adequately secured.

9. To keep records of periods specified as 'Trading Window'.

10. To ensure that the 'Trading Window' is closed at the time of given in Regulation.

11. To ensure that the closure of the trading window is duly intimated to all concerned.

12. To ensure that the trading window is opened 24 hours after the information unpublished price sensitive information is made public.

13. To ensure that trading restrictions are strictly observed and that all directors/officers/designated employees conduct all their dealings in the securities of the company only when trading window is open.

14. To ensure that no sale of shares allotted on exercise of ESOPs is allowed when trading window is closed.

15. To procure various disclosures as required under Regulation.

16. To inform all stock exchanges on which the company's securities are listed within five days, the information received by way of disclosures under the Regulation.

17. To process applications received for pre-clearance of transactions as per the procedures laid down in the Regulation.

18. To receive and maintain records of periodic and annual statement of holdings from directors/ officers/ designated employees and their dependent family members.

19. To maintain records of all the declarations in the appropriate form given by the directors/officers/ designated employees for a minimum period of three years.

20. To place before the managing director or a committee of directors as may be specified for the purpose, on a monthly basis all the details of the dealings in the securities by employees/directors/ officers of the company and the accompanying documents that such persons had executed under the pre-clearance procedure.

21. To implement the punitive measures or disciplinary action prescribed for any violation or contravention of the code of conduct.

22. To inform the SEBI of any violation observed, within 7 days of knowledge thereof.


“SCHEDULE III”

FORMS

FORM A

Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992

(Regulation 13 (1) and (6)

Regulation 13(1) – Details of acquisition of 5% or more shares in a listed company

Name & address of shareholder with telephone number

Shareholding prior to acquisition

No. and percentage of shares /voting rights acquired

Date of receipt of allotment /advice. Date of acquisition(specify)

Date of intimation to Company

Mode of acquisition (market purchase/public/

rights/

preferential offer etc.)

Shareholding subsequent to acquisition

Trading member through whom the trade was executed with SEBI Registration No. of the TM

Exchange on which the trade was executed

Buy quantity

Buy value

 

 

 

 

 

 

 

 

 

 

 

 

FORM B

Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992

(Regulation 13 (2) and (6)

Regulation 13 (2) – Details of shares held by Director or officer of a Listed company

Name & Address of Director/Officer

Date of assuming office of Director / Officer

No. & % of shares/voting rights held at the time of becoming Director / Officer

Date of intimation to company

Mode of acquisition (market purchase / public / rights / preferential offer etc.)

Trading member through whom the trade was executed with SEBI Registration No. of the TM

Exchange on which the trade was executed

Buy quantity

Buy value

 

 

 

 

 

 

 

 

 

FORM C

Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992

(Regulation 13 (3) and (6)

Regulation 13(3) – Details of change in shareholding in respect of persons holding more than 5% shares in a listed company

Name & address of shareholders

Shareholding prior to acquisition/sale

No. & % of shares/voting rights acquired/sold

Receipt of allotment advice/acquisition of shares/sale of shares – specify

Date of intimation to company

Mode of acquisition on (market purchase/public/rights/preferential offer etc.)

No. & % of shares/voting rights post-acquisition/sale

Trading member through whom the trade was executed with SEBI Registration no. of the TM

Exchange on which the trade was executed

Buy quantity

Buy value

Sell quantity

Sell value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FORM D

Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992

(Regulation 13 (4) and (6)

Regulation 13(4) – Details of change in shareholding of Director or Officer of a Listed Company

Name & Address of Director/Officer

No. & % of shares/voting rights held by the Director/Officer

Date of receipt of allotment advice/acquisition / sale of shares/voting rights

Date of intimation to company

Mode of acquisition(market purchase/public/rights/preferential officer etc.)

No. & % of shares/post acquisition/voting rights sale

Trading member through whom the trade was executed with SEBI Registration no. of the TM

Exchange on which the trade was executed

Buy quantity

Buy value

Sell quantity

Sell value

 

 

 

 

 

 

 

 

 

 

 

 

Source of Forms: SEBI Website

  

Link of Part I: Insider trading - An overview (Part I)

 

Regards

CMA. Sanjay Gupta




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CMA. CS. Sanjay Gupta 

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