Insider Trading

SEBI has vide an amendment dated 21st January, 2019 amended the clause 7(1) of the SEBI (Prohibition of Insider Trading) REgulations 2015.

Clause 7(1) of the PIT Regulations refers to initial disclosure by every promoter, KMP and Director of every company whose securities are listed on a stock exchange, they are required to disclose his holding of securities in the company as on the date of the regulations coming into force. The initial disclosure was required to be done within 30 days of the regulations coming into force.

Now vide this amendment, which was with effect from 21st January, 2019, "member of the promoter group" is also included in the list of persons who are required to give their initial disclosures.

Now the meaning of "promoter group" is defined in the SEBI (Issue of Capital and Disclosure Requirements) REgulations, 2018. (ICDR Regulations).

As per the said ICDR regulations, "promoter group" includes

i) the promoter;

ii) an immediate relative of the promoter (i.e. any spouse of that person, or any parent, brother, sister or child of the person or of the spouse); and

iii) in case promoter is a body corporate:
A) a subsidiary or holding company of such body corporate;
B) any body corporate in which the promoter holds twenty per cent. or more of the equity share capital; and/or any body corporate which holds twenty per cent. or more of the equity share capital of the promoter;
C) any body corporate in which a group of individuals or companies or combinations thereof acting in concert, which hold twenty per cent. or more of the equity share capital in that body corporate and such group of individuals or companies or combinations thereof also holds twenty per cent. or more of the equity share capital of the issuer and are also acting in concert;

and iv) in case the promoter is an individual:
A) any body corporate in which twenty per cent. or more of the equity share capital is held by the promoter or an immediate relative of the promoter or a firm or Hindu Undivided Family in which the promoter or any one or more of their relative is a member;
B) any body corporate in which a body corporate as provided in (A) above holds twenty per cent. or more, of the equity share capital; and
(C) any Hindu Undivided Family or firm in which the aggregate share of the promoter and their relatives is equal to or more than twenty per cent. of the total capital;

v) all persons whose shareholding is aggregated under the heading "shareholding of the promoter group":

Provided that a financial institution, scheduled bank, foreign portfolio investor other than Category III foreign portfolio investor, mutual fund, venture capital fund, alternative investment fund, foreign venture capital investor, insurance company registered with the Insurance Regulatory and Development Authority of India or any other category as specified by the Board from time to time, shall not be deemed to be promoter group merely by virtue of the fact that twenty per cent. or more of the equity share capital of the promoter is held by such person or entity:

Provided further that such financial institution, scheduled bank, foreign portfolio investor other than Category III foreign portfolio investor, mutual fund, venture capital fund, alternative investment fund and foreign venture capital investor insurance company registered with the Insurance Regulatory and Development Authority of India or any other category as specified by the Board from time to time shall be treated as promoter group for the subsidiaries or companies promoted by them or for the mutual fund sponsored by them;

So members of the promoter group have to give their initial disclosures in the form prescribed within 30 days of the amendment coming into force i.e. within 30 days of 21st January, 2019 or on or before 19th February, 2019. 

Insider Trading order by SEBI

SEBI has passed an insider trading order in the matter of Mr. X of Wipro Ltd.

As per Regulation 13(4) of the Prohibition of Insider Trading Regulations 1992

(4) Any person who is a director or officer of a listed company, shall disclose to the company and the stock exchange where the securities are listed in Form D, 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.

It was concluded that Mr. X was an Officer within the purview of the Regulations and therefore having traded shares exceeding Rs.5 lakhs during November - December 2012 and not having given the necessary intimation in Form D he was held guilty under the PIT Regulations 1992 and fined Rs.5 lakh.

A copy of the order can be found here

Definition of Officer in the relevant regulations can be found here:

Regulation 2 (g) of PIT Regulations, 1992 - "Officer of a company' means any person as defined in Clause (30) of Section 2 of the Companies Act, 1956 (1 of 1956) including an auditor of the company".
Section 2 (30), Companies Act, 1956- Definition of ‘Officer’ – “Officer includes any director, manager or secretary or any person in accordance with whose directions or instructions the Board of directors or any one or more of the directors is or are accustomed to act”.

Interesting to note that the person is the geographical head of a particular territory and he in turn reports to the CEO of the organisation. Therefore SEBI holds him as an Officer since he is holding an important position in the organisation .

 

SEBI order on insider trading

SEBI has passed a landmark order on insider trading on 4th January 2012 against Mr. Vasant Kaul, Independent Director or Ranbaxy Laboratories Ltd. levying a fine of Rs.50 lakhs on him and Rs.10 lakhs on his wife. Both order are available on the SEBI website V.N. Kaul and Bala Kaul

Few unique features about this order:

Insider trading was carried out in the wholly owned subsidiary of the company in which Mr. Kaul was an independent director and he was still considered an insider;

I am not aware if this is the first time this is happening in India, but SEBI has used telephonic conversations as evidence and has taken support from the recent Rajaratnam case where telephonic transscripts were extensively used.

It would be interesting to follow this story to see what happens in the courts because i am sure that appeals will be filed against this order in the Courts.