In a move to bolster market integrity and investor confidence, the Securities and Exchange Board of India (SEBI) has proposed a significant expansion of the definition of Unpublished Price-Sensitive Information (UPSI). This comes in the wake of increasing concerns surrounding insider trading and the need for greater transparency in the stock market. By providing clearer guidelines on what constitutes UPSI, SEBI aims to create a level playing field for all investors and efficient markets. The proposed changes are expected to have far-reaching implications for listed companies, investors, and the overall market ecosystem.
UPSI encompasses any information about a company or its securities that remains hidden from the public eye and has the potential to significantly sway the price of its securities once revealed. This means the information is not readily accessible through public channels such as stock exchanges, news releases, or the company’s official website. The key characteristic of UPSI is its potential to influence investor decisions.
In essence, UPSI is any piece of information that could grant someone an unfair advantage in the market. This ‘insider information’ can be related to a broad range of factors, including the company’s financial performance (such as upcoming earnings results or significant changes in revenue), strategic decisions like mergers and acquisitions or new product launches, regulatory actions, legal developments, and even changes in key managerial personnel.
Essentially, any information that could give one investor an edge over another by virtue of being privy to non-public knowledge falls under the scope of UPSI.
SEBI’s proposed changes
Recognising the need for greater clarity and comprehensiveness, SEBI’s proposal seeks to explicitly include a broader spectrum of events under the UPSI umbrella. These additions aim to address ambiguities in the existing definition and ensure that all material information is disclosed to the public in a timely manner. Some key additions include proposed fundraising activities such as plans for initial public offerings (IPOs), rights issues, or other methods of raising capital. Additionally, the restructuring plans which cover major organisational changes, such as mergers, demergers, or significant divestitures would fall under UPSI.
It also covers one-time bank settlements including large settlements with banks, particularly those involving write-offs or significant financial implications. Furthermore, UPSI also covers agreements impacting management and control which include shareholder agreements, joint ventures, and family settlements that would affect the company’s leadership and decision-making. The scope of UPSI definition also includes developments in insolvency proceedings such as key events in corporate insolvency resolution processes, such as the initiation or approval of resolution plans.
By expanding the scope of UPSI, the regulator aims to create a more transparent market environment where investors have access to critical information for making informed decisions. The new guidelines certainly create a level the playing field between insiders and retail investors by reducing information asymmetry which in turn will help in reducing the potential for insider trading and market manipulation.
Further, better disclosure requirements will encourage listed companies to adopt better corporate governance practices and prioritise timely and accurate information dissemination. Finally, such measures will increase investor confidence because of enhanced transparency leading to reduced information asymmetry attracting more capital and promoting market growth.
This proactive measure by SEBI is poised to have a significant and positive impact on the stock market.
Saravanan is a professor of finance and accounting at IIM Tiruchirappalli, and Williams is the Head of India at Sernova Financial