[Opinion] Implications of Re-defining Unpublished Price Sensitive Information Under the Prohibition of Insider Trading Regulations

CS Vallabh M Joshi & Shravan Pai – [2023] 157 taxmann.com 76 (Article)

Background

Prior to April 1, 2019, “Material events in accordance with the listing agreement” was considered as Unpublished Price Sensitive Information [‘UPSI’]. Regulation 2 (1) (n)(vi) of the Securities and Exchange Board of India [Prohibition of Insider Trading] Regulations, 2015 [“PIT Regulations”] provided for the same. Regulation 2(1)(n) (vi) was omitted pursuant to the amendment dt: December 31st , 2018 to the PIT Regulations. This was understood as ‘Material events in accordance with the listing agreement” would not be considered as UPSI. This deletion of clause (vi) was pursuant to the recommendations of Committee on Fair Market Conduct (referred as FMC Committee) formed by Securities and Exchange Board of India [“SEBI”] in August 2017 [‘Vishwanathan Committee’]. Vishwanathan Committee recommended deletion of ‘clause (vi) of Regulation 2(1)(n) as it observed that definition of UPSI is an inclusive definition and hence it is not necessary to include list of material events that would be included in the definition of UPSI.

Now SEBI has vided a Consultation Paper dt: May 18, 2023, titled “Consultation Paper on proposed review of the definition of Unpublished Price Sensitive Information (UPSI) under SEBI (Prohibition of Insider Trading) Regulations, 2015 to bring greater clarity and uniformity of compliance in the ecosystem” [‘Consultation Paper 2023’] it is being proposed to amend the definition of UPSI under PIT Regulations and add “(vi) material event in accordance with Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015” in the definition of UPSI. So, it is proposed that material event in accordance with Regulation 30 would be considered as UPSI. Giving rationale behind this move SEBI highlighted that, “It was observed from the analysis that, by and large companies categorised only the items explicitly mentioned in Regulation 2(1)(n) of PIT Regulations as UPSI. The market feedback also suggested that most companies consider this to be a ‘uniform practice’ since this is explicitly articulated in PIT Regulations.”[1]

This highlights that companies were not exercising proper care and diligence in the matter, which has led to SEBI issuing a consultation paper proposing to amend the definition of UPSI under the PIT Regulations by linking it to the material events as defined under Regulation 30 of SEBI [Listing Obligations and Disclosures] Regulations, 2015 [“LODR Regulations”].

Now going forward if this gets approved then what would be the scenario? Let us try to understand the same in this article.

Introduction

Para A and Para B, Part A Schedule III read with Regulation 30 of LODR Regulations, specifies disclosures of events or information to be made to the stock exchanges by listed entities which have specified securities listed on the stock exchange whereas Part B specifies disclosure requirements applicable to listed entities having non-convertible securities listed on the stock exchange.

On analyzing Para A and Para B of Part A of the Schedule III it is seen that there are forty-one sets of events or information which require disclosures to the stock exchanges. So, can it be said that all such forty-one sets of information be considered as UPSI? Amongst these forty-one instances of events or information there would be certain events or information which would be recurring nature viz. change in senior management, change in RTA, disclosure of events or information that are sent to shareholders etc.

Material information or events as stated above falling under the ambit of Part A Schedule III, if are considered as UPSI under PIT Regulations then listed entities would need to keep its trading window closed for the entire year and it would be difficult for designated persons to trade in the securities of the company except if he has a trading plan. Thus, there is a possibility that the requirement of trading plan might become a mandate for all the designated persons if the proposals under Consultation Paper dt: May 18, 2023, gets approved.

But as we have seen there are certain material events or material information under Part A that are recurring in nature and occurrence of such events might not materially impact the price of the securities of the company. But, if proposals under the Consultation Paper 2023 sails through then all the forty-one instances of material events or information would be considered as UPSI.

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