Capital market regulator SEBI strengthened insider trading rules, streamlined the regulations governing listed firms and eased the norms for de-listing of companies, at its board meeting, on Wednesday.
Onus on insiders SEBI has widened the definition of who exactly is an insider by including persons in possession of or with access to unpublished price sensitive information. The definition now states that all persons and their immediate relatives with a contractual, fiduciary or employment relationship with the company will be considered “connected persons”.
The onus of proving that they were not in possession of the price-sensitive information has been put on them. “The new regulations strengthen the legal and enforcement framework, align the Indian regime with international practices, provide clarity to definitions and concepts, and facilitate legitimate business transactions,” SEBI said.
The regulator has exempted communication of unpublished price-sensitive information for legitimate business transactions, with adequate safeguards.
Communication of such information is mandatory except when it is required for performance of duties or discharge of legal obligations. In such cases, advance disclosure has to be made, at least two days prior to trading.
The definition of unpublished price sensitive information has been strengthened by providing a test to identify such information and aligning it with the listing agreement.
Going forward, companies will have to disclose trading and holdings of third-parties who are connected to them. Derivative trading in the company’s scrip by directors and key managerial persons is now prohibited (in line with the Companies Act).
Insiders who possess such information all round the year will have the option of formulating pre-scheduled trading plans, which should be strictly adhered to, and disclosed on the stock exchange. SEBI has also converted the listing agreement for every type of security into a listing regulation, called SEBI Listing Obligations and Disclosure Requirements Regulations, 2014.
These regulations will cover equities, convertibles on the main board and SME board, debt instruments, Indian Depository Receipts, non-convertible redeemable preference shares, securitised debt instruments and mutual fund units.
The regulations have been changed to bring greater clarity, maintain consistency and remove redundancies.
Certain provisions in the listing agreements that were not in the nature of continuous obligations, such as payment of interest on account of delay in allotment/non-allotment of shares, has now been made mandatory.
Delisting SEBI has reduced the timeline for de-listing from 137 to 76 days besides allowing the use of the stock exchange platform for de-listing, takeover and buyback offers.
Acquirers have been given the option to delist the shares of the target company directly, after an open offer is triggered. Failure to de-list would, however, require the acquirer to complete the mandatory open-offer process under Takeover Regulations and pay interest at 10 per cent per annum for the delayed offer.
Impact on insiders Tejesh Chitlangi, Partner IC Legal, said perpetual insiders (those in continuous possession of unpublished price-sensitive information) will have to frame their trading plans in advance.
Firstly, it would be impractical for such insiders, like directors and promoters, to predict their trading proposals with precision. Secondly, it may also lead to unwarranted movement in the stock price, since a large section of the public may simply follow the trading pattern of such insiders.
The new delisting framework seems to be more balanced and fair to both promoters as well as minority shareholders.
The price discovery is likely to be more transparent and fair, and more delisting offers are likely to sail through, compared to the past.