Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015

What it does

The Regulations prohibit an insider from dealing in the securities of a listed company, or communicating or procuring unpublished price sensitive information about it, except in the cases the Regulations allow. Unpublished price sensitive information is information relating to a company or its securities that is not generally available and that would, on becoming generally available, be likely to affect the price of the securities materially. The Regulations list the kinds of information that fall within the definition, which include financial results, dividends, changes in capital structure, mergers and acquisitions, and changes in key managerial personnel.

The Regulations replaced the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992. The earlier regulations looked at the person who traded and asked whether the person was a connected person. The 2015 Regulations put the emphasis on possession of the information, and they define a connected person widely. A person who has had a connection with the company in the recent past is treated as connected, and a person who receives information from a connected person may be treated as an insider.

The Regulations also require a code of conduct, which is a set of internal controls. A listed company and a market intermediary must adopt one, with trading windows that close when unpublished price sensitive information is likely to exist, pre-clearance of trades by designated persons, and a structured digital database of the persons with whom information has been shared.

Who it binds

Insiders, which means connected persons and persons in possession of unpublished price sensitive information. Directors, officers and employees of a listed company, its professional advisers, auditors and bankers, and persons who deal with it in the course of business, can all be connected persons. Listed companies and intermediaries are bound to adopt and enforce the code of conduct. Promoters and designated persons have to make disclosures of their holdings and trades.

What has changed, and when

The Regulations were notified in January 2015 and came into force on 15 May 2015. They have been amended several times, including in 2018 and 2019. The amendments added the concept of legitimate purposes, under which information may be shared for a proper business reason, and an informant scheme under which a person who gives the regulator information about a violation may be rewarded. They also tightened the obligations on listed companies on the structured digital database and on the code of conduct.

What turns on it in practice

Most compliance questions concern timing. Information is unpublished until it is made generally available, and for a listed company the main way of making it generally available is the disclosure it makes to the stock exchanges. The site's note on the clocks that run under Regulation 30 of the listing regulations explains that the shortest of those clocks starts when the board meeting closes. A company needs to see both sets of rules together: the listing regulations decide when information must be disclosed, and these Regulations decide who may trade until it is.

The second point is the control of information within the company and its advisers. A deal team, a bank, a law firm and an auditor each hold information about a transaction, and each needs a record of who knows what. A breach is usually found through trading data, and the question then is whether the person traded while in possession of information, which is a question of fact on the record.

The third is the consequence. The Securities and Exchange Board of India Act, 1992 provides penalties for insider trading and for violation of the Regulations, and it also provides for prosecution. A person who has traded should expect the regulator to look at the communications that preceded the trade. This Regulation is among the instruments named on the site's notes for listed company compliance, with the listing regulations, the takeover regulations and the Act.