Insider Trading: SEBI Asks Companies to Be Serious in Reporting Lapses
Pammy Jaiswal 23 July 2019
The listed entities are burdened with the compliance requirements under numerous regulations issued by the Securities Exchange Board of India (SEBI) including the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations). These regulations lay down various to-dos for the listed companies as well as the designated persons (DPs) for the purpose of regulating and prohibiting insider trading in the securities of the listed company.
 
Vide its circular dated 19 July 2019, SEBI has laid down a format for reporting insider trading lapses, thereby forcing all companies to follow a standard reporting format. The existing practice of companies using rather informal and self-generated reporting formats will no longer be available to them. 
 
It is not that insider trading lapses noted by companies are those of profiteering based on unpublished price sensitive information (UPSI). Most of the noted instances in practice are technical and unintentional breaches of either the trading window closure or contra trading restrictions. Most of these are reported to the audit committee or stakeholder’s relationship committee which, typically, takes action based on the gravity of the offence. However, reporting to SEBI was done on a rather diminutive scale.
 
Further, the circular also provides for recording the violations in the digital database maintained by the compliance officer under the PIT regulations for the purpose of taking appropriate action against the offender. The circular is effective with immediate effect.
 
Current Reporting Scenario
 
The current practice of the corporates for reporting the violation under the code (either for entering into contra-trade within a period of six months or trading during the closure of trading window, etc.) along with the action taken by the entity is diverse. While some companies mark a copy of the reprimand to SEBI while sending it to the concerned DP (depository participant) or their immediate relatives, others send a brief of the violation along with the action taken to SEBI, depending on the frequency and gravity of the violation so made, in accordance with their respective codes.
 
Revised Reporting 
 
The revised reporting format contains all the required fields for the entity (listed entity, intermediary or fiduciary) to report the violation to SEBI. The following is the summary of details that is mandatorily required to be filled up about the entity, the DP or his immediate relative and the violation along with the action taken by the entity: 
 
 
Concluding Remarks
 
Evidently, the format contains concrete information about the violation which will place SEBI in a better position to oversee and take on record the instances of violation taking place in the regulated entities. While the current practice had deficiencies in terms of the basic information supplied to SBI, the revised reporting format will take care of it henceforth. 
 
However, prompt reporting will be a task for the entities. At the same time, SEBI will now be in receipt of complete information on the offence and may take strict action against the offender or may even direct the entities to take stricter action in cases where it feels the action taken is not commensurate with the nature and gravity of the violation. 
 
(Pammy Jaiswal is partner at Vinod Kothari and Company)
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