Sebi eases 'trading plans' framework for companies' insiders

Capital markets regulator Sebi on Wednesday eased 'trading plans' framework for companies' insiders, who are perpetually in possession of unpublished price sensitive information.

Under the rule, 'Trading Plans' (TP) enable persons like senior management or Key Managerial Personnel (KMP), who are perpetually in possession of Unpublished Price Sensitive Information (UPSI), to trade in securities in a compliant manner.

In a notification, Sebi said that a minimum cool-off period between disclosure and implementation of trading plan has been reduced to four months from six months earlier.
It means trading plans can be executed only after 6 months from its public disclosure.

The regulator said that the insider will have flexibility, during formulation of TP, to provide price limits -- upper price limits for buy trades and lower price limits for sell trades. Such price limit will be within +/-20 per cent of the closing price on date of submission of TP.

If the price of the security is outside the price limit set by the insider, the trade will not be executed, it added.

Upon approval of the trading plan, the compliance officer must notify the stock exchange(s) within two trading days of approval and also recommends disclosing the price limit.

If the trading plan is not fully or partially implemented due to lack of liquidity, the insider must inform the compliance officer of the non-implementation within two trading days after the plan ends, providing reasons and any supporting documents.

The compliance officer will present this information and their recommendation to the Audit Committee at its next meeting.

The Audit Committee will decide if the non-implementation was justified. The compliance officer will notify the stock exchanges of the Audit Committee's decision on the same day. If the Audit Committee rejects the insider's reasons, the compliance officer will follow the Code of Conduct to take appropriate action.

To give this effect, the Securities and Exchange Board of India (Sebi) has amended insider trading rules, which will come into force on the 90th day from the date of its publication in the Official Gazette.

Going by the regulatory framework, the prohibition on insider trading is based on the premise that trading in securities by a person would be influenced by the UPSI in their possession, which is not accessible to others in the market.

However, insiders are allowed to trade, provided they are not in possession of UPSI and subject to compliance with other provisions of insider trading rules.

These insiders like those in senior management, who have a very small window for carrying out their trades, may need to trade for purposes such as creeping acquisitions and for compliance with minimum public shareholding norms. Sometimes, they may wish to dispose of the shares acquired through exercising stock options.

In November 2023, Sebi issued a consultation paper to simplify the process of trading in shares for company officials, who usually have access to UPSI.