Insider Trading-Analysis of Provisions, Offences and Penalties: A presentation at Indian Institute of Corporate Affairs by Mr. Manoj Kumar, Assistant Vice President, Corporate Professionals. Key Highlights: Who is and Insider?, Insider Regulation 2(e), explanation to connected person, regulation 2(h), What Is Price Sensitive Information, OFFICER OF A COMPANY – REGULATION 2(g), Procedure for Investigation…

1. [ICLS Mid Career Training Programme]
Analysis of
07.01.2013 | Session II Provisions,
SEBI Prohibition of Insider Trading Offences
Regulations
&
By
MANOJ KUMAR Penalties
Assistant Vice President
Corporate Professionals Capital Private Limited

2. Agenda
• Key Terms
• Prohibition on dealing, communicating or counseling
• Investigation
• Procedure for Investigation
• Direction by SEBI
• Action in case of Default
• Disclosures to be made
• Model Code of Conduct

3. WHAT IS INSIDER TRADING????
INSIDER TRADING
means
dealing in the securities
by an Insider,
who has the knowledge of
material “inside” information
of the company
which is not available in the
Public domain.

4. Who Is an INSIDER ?????

5. INSIDER - REGULATION 2(e)
Any Person
Who
(i) OR
is was
connected with the company
OR
deemed to have been connected with the company
AND
is expected to have access to
UNPUBLISHED PRICE SENSITIVE INFORMATION
OR
(ii)
Has Received OR Has Had Access
TO
UNPUBLISHED PRICE SENSITIVE INFORMATION

6. CONNECTED PERSON
Any Person
Who
is a director under section 2(13) of the Companies Act, 1956,
or
deemed to be a director of that company under section 307(10) of the Act
OR Holds the position Involving
or or Professional Business
an officer an employee
relationship relationship
Whether TEMPORARY or PERMANENT
AND
may reasonably to have an access to
Unpublished Price Sensitive Information

7. EXPLANATION TO CONNECTED PERSON
“CONNECTED PERSON”
6 Shall mean
any person
who is a connected person
6 6 SIX MONTHS
prior to an act of insider trading
6

8. PERSON DEEMED TO BE CONNECTED -REGULATION 2(h)
Company under the same Management/ Group/Subsidiary;
Intermediary, IC, TC, AMC, or employee or director or official of Stock
Exchange or Clearing House;
MB, STA, RTA, DT, Broker, sub-broker, PM, IA, IC, or employee;
Member of the Board of MF or member of BOD of the AMC of a MF or is an
employee who have a fiduciary relationship with the company;
Member of Board of Directors or employee of PFI;

9. PERSON DEEMED TO BE CONNECTED -REGULATION 2(h)
Official or an employee of a Self-regulatory Organization;
Relative of any of the aforementioned persons;
Banker of the company;
Relatives of the connected person;
Any Concern / Firm / trust / HUF/ Company / AOP in which connected person or person
mentioned in clause (vi), (vii) or (viii) of this clause
Have More than 10% of the holding or Interest

10. What Is Price Sensitive
Information ?????

11. PRICE SENSITIVE INFORMATION-
REGULATION 2(ha)
Price Sensitive Information means:
information which relates
directly or indirectly
to a company
AND
which if published is likely to
materially affect the price of securities of
company.

12. DEEMED PRICE SENSITIVE
INFORMATION
Periodical financial results of the company;
Intended declaration of dividend;
Issue of securities or buy back of securities;
Major expansion plan OR Execution of new projects;
Amalgamations, merger, takeovers;
Disposal of whole or substantial part of the undertaking;
Changes in policies, plans or operations

13. PRICE SENSITIVE INFORMATION- AS
PER CLAUSE 36 LISTING AGREEMENT
Change in the general character or nature of
business.
Disruption of operations due to natural
calamity.
Commencement of Commercial Production/
Commercial Operations.
Litigations/ dispute with a material Impact.
Revisions in Ratings.

14. PRICE SENSITIVE INFORMATION- AS
PER CLAUSE 36 LISTING AGREEMENT
Any other information having bearing on the
operation/ performance of the Company as well
as price sensitive information which includes but
not restricted to;
• Change in market lot / sub-division ;
• Voluntary delisting by the company ;
• Forfeiture of shares;
• Alteration in terms of any securities ;
• Information regarding securities issued abroad ;
• Cancellation of dividend/ rights/ bonus etc.

15. OFFICER OF A COMPANY – REGULATION 2(g)
OFFICER OF A
COMPANY
Means Includes
Person defined in Section
2(30) of the Companies Auditor of the Company
Act, 1956
Section 2(30) : "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.

16. UNPUBLISHED -REGULATION 2(k)
Information which is not published by the
company or its agents and is not specific
in nature.
Explanation
Speculative reports in print or electronic
media shall not be considered as published
information.

17. DEALING IN SECURITIES -
REGULATION 2(d)
“Dealing In Securities” means
an act of Subscribing, Buying, selling
or
agreeing to subscribe, buy, sell
or deal in any securities
by any person
either
as principal or agent;

18. PROHIBITION ON
DEALING, COMMUNICATING OR
COUNSELLING

19. PROHIBITION ON INSIDER-REGULATION 3
NO INSIDER
shall
Either on his own behalf or On Other’s behalf
DEAL IN SECURITIES OF THE COMPANY
when
IN POSSESSION OF ANY UPSI
or
COMMUNICATE / COUNSEL / PROCURE
Directly or Indirectly
ANY UPSI TO ANY PERSON

20. EXCEPTION TO REGULATION 3
Any communication which is required in the
Ordinary course of
business, OR
Profession, OR
Employment, OR
Under any law.

21. PROHIBITION ON COMPANY- REGULATION 3A
NO COMPANY
SHALL
Deal in Securities of
Associate of that
Other company or other company
WHEN
IN POSSESSION OF ANY
UNPUBLISHED PRICE SENSITIVE INFORMATION

22. NON APPLICABILITY OF REGULATION 3A
The decision of
Proper arrangement in place to
transaction or agreement
block the dissemination of
was not taken by officer or employee
UPSI; AND
of the company who is in possession
of UPSI; AND
The acquisition was in
line with the SEBI
Takeover Regulations
Adequate Procedures are in place to The information was
demarcate the persons
not so communicated and
having UPSI & persons dealing in
securities; AND no such advice was so given; OR.

23. PROVISIONS RELATING TO
VIOLATION – REGULATION 4
Any insider, who
deals in securities
in contravention of the
provisions of Regulation 3 or 3A
shall be
guilty of Insider Trading..

24. INVESTIGATION

25. POWER TO MAKE INQUIRIES AND
INSPECTION- REGULATION 4A
If the Board Suspects any person
has violated the provisions of these
Regulations
It may Make enquiries,
or
appoint person to inspect books & records
of such persons
Form a prima facie opinion ,
whether there is violation of these
regulations

26. BOARD’S RIGHT TO INVESTIGATE -
REGULATION 5
Where the Board, is of prima facie opinion that it is necessary to
investigate and inspect
books of account, documents of
an insider or any person
On the basis of compliant received form investors, intermediaries or any
other person,
Or suo-motu upon its own knowledge, to protect the interest of
investors, it may
appoint an INVESTIGATING AUTHORITY

27. PROCEDURE FOR INVESTIGATION

28. REGULATION 6 to 9
On Appointme Investigati
Complaints nt of Notice on
Issued
/ Suo-moto Invtg. Auth. Started
On
To provide Findings to Shall Reply
Conclusion
all suspected within 21
Report to
assistance person days
Board
Board will
Issue
directions

29. DIRECTIONS BY SEBI

30. REGULATION 6 to 9
Not to deal in securities ;
Not to dispose of any of the securities acquired in violation of these
regulations;
Not to communicate or counsel any person to deal in securities;
Declaring the transaction(s) in securities as null and void;
Deliver the securities back to the seller :
To transfer proceeds to the investor protection fund of a recognized stock
exchange.

31. Action in case of default

32. REGULATION 14
• Action under Section 11 of SEBI Act, 1992
• Directions under Section 11(4) (suspension of Trading & debarment)
• Directions under section 11B of the SEBI Act
• Cease and desist order in proceedings under section 11D of the
Act;
• Penalty for failure to furnish information, return etc. under section
15A of the SEBI Act, 1992
• Monetary penalties under section 15G of SEBI Act, 1992 (upto 3X
or Rs. 25 Cr. whichever is higher)
• Criminal prosecution under section 24 of the SEBI Act (ten year
imprisonment or fine upto Rs. 25 cr.)

33. DISCLOSURE TO BE MADE

34. DISCLOSURE REQUIREMENT
Regulatio Particulars By whom To whom Time Form
n No. limit
13(1) On the acquisition of >5% Any Person Company 2 A
working
days
13(2) Disclosure of shares or voting rights held Director or Company 2 B
and positions taken in derivatives by such officer working
person and his dependents (as defined by days
the company) on becoming the Director or
officer
13(2A) Disclosure of shares or voting rights on Promoter or Company 2 B
becoming the promoter or part of person working
promoter group belonging to days
promoter group
13(3) Change in shareholding of (±) >2% from Persons already Company 2 C
the last disclosure made under sub holding more working
regulation (1) or under this sub regulation. than 5% days

35. DISCLOSURE REQUIREMENT
Regulatio Particulars By whom To whom Time Form
n No. limit
13(4) Change in holding in excess of Rs.5 Lakh in Director or Company as 2 D
value or 25,000 shares or 1% of total officer well as Stock working
shareholding or voting rights from the last Exchange days
disclosure made under sub regulation (2)
or under this sub regulation.
13(4A) Change in holding in excess of Rs.5 Lakh in Promoter or Company as 2 D
value or 25,000 shares or 1% of total person well as Stock working
shareholding or voting rights from the last belonging to Exchange days
disclosure made under Listing Agreement promoter
or under sub regulation (2A) or under this group
sub regulation.
13(6) On the receipt of disclosure under 13(1), Company Stock 2 A or B
13(2), 13(2A), 13(3), 13(4) and 13(4A) Exchange working or C or
days D as the
case
may be

36. Model code of conduct

37. CODE OF CONDUCT TO BE ABIDE BY
ALL LISTED COMPANIES
Organizations Associated with Securities Markets
including:
• All intermediaries
• AMC and trustees of mutual funds;
• The Self Regulatory Organizations;
• The Stock Exchanges / Clearing House /
Corporations;
• The Public Financial Institutions
• The Professional Firms
Such as Auditors, Accountancy Firms, Law
Firms, Analysts, Consultants, etc., assisting or
Advising Listed Companies

38. SCHEDULES – MODEL CODE OF
CONDUCT
SCHEDULE I
MODEL CODE OF CONDUCT
FOR PREVENTION OF INSIDER TRADING
PART A - FOR LISTED COMPANIES
PART B – FOR OTHER ENTITIES
SCHEDULE II
CODE OF CORPORATE DISCLOSURE PRACTICES
FOR
PREVENTION OF INSIDER TRADING

39. IMPORTANT TERMS- NEED TO KNOW
• PSI should be disclosed only to those within
the company who need the information to
discharge their duty.
• Limited access to confidential information
• Files containing confidential information shall
be kept secure.
• Computer files must have adequate security of
login and pass word etc.

40. PRE CLEARANCE OF TRADES
• All D/O/E of the Co and their dependants as defined by
the company who intend to deal in the securities
beyond a limit should pre-clear the transactions.
• An application to the Compliance officer indicating
• The estimated number of securities that the D/O/E and
their dependants intends to deal in,
• The details as to the depository with which he has a
security account,
• The details of securities in such depository mode.
• Other details as may be required by any rule made by
the company in this behalf.

41. TRADING WINDOW
• Company shall specify a trading period, to be called
"Trading Window", for trading in the company’s
securities.
• The trading window shall be closed during the time
the Price Sensitive information is un-published.
• When the trading window is closed, the D/ E shall
not trade in the company's securities in such
period.
• The trading window shall be opened 24 hours after
the Price Sensitive Information is made public.

42. RESTRICTED /GREY LIST
To restrict trading in certain securities and designate such list as restricted / grey
list.
Client Companies for which any assignment or appraisal report or credit rating
assignments are going on.
Any security which is purchased or sold by the organisation / firm on behalf of its
clients / schemes of mutual funds, etc. shall be put on the restricted / grey list.
As the restricted list itself is a highly confidential information, It shall be maintained
by CO.

43. CHINESE WALL
• "Chinese Wall" policy demarcates “inside areas” from
"public areas".
• Those areas having access to confidential
information, considered “inside areas” and areas which
deal with sales / marketing / investment considered
"public areas".
• The employees in the inside area shall not
communicate any PSI to anyone in public area.
• In exceptional circumstances employees from the
public areas may be brought "over the wall" and given
confidential information on the basis of "need to
know" criteria, under intimation to the CO

44. COMPLIANCE OFFICER (CO)
 Compliance Officer means „Senior Level Employee‟ who shall report
to the MD / CEO.
 The CO shall be responsible for
- setting forth policies, procedures
- monitoring adherence to the rules for the preservation of “PSI”,
- pre-clearing of designated employees‟ and their dependents‟ trades
- monitoring of trades and the implementation of the code of conduct
under the overall supervision of the Board of the listed company.
 The CO shall maintain a record of the designated employees and any
changes made in the list of designated employees.
 To Provide clarifications regarding the SEBI (Prohibition of Insider
Trading) Regulations, 1992 & the company's code of conduct to the
Company‟s employees.

45. Lastly………….
It is easier to identify the beneficiaries of
insider dealing
But
the extent of losses occurred to the
general investor is
impossible to calculate

46. Thanking you …
Manoj Kumar
Assistant Vice President
Corporate Professionals Capital Private Limited
D-28, South Extension –I, New Delhi-110 049
Ph: +91.11.40622200; Fax: +91.11.40622201;
E: Manoj@indiacp.com | M: +91.9910688433