The Securities and Exchange Board of India (Sebi) has proposed significant changes to the regulatory framework for ‘Trading Plans’ (TP) under the insider trading rules. These changes aim to provide flexibility for individuals, such as senior management or Key Managerial Personnel (KMP), who are often in possession of Unpublished Price Sensitive Information (UPSI). The motivation behind these proposals is to make trading plans more accessible and less burdensome, as the current regulatory requirements are seen as onerous and have resulted in low adoption of trading plans since their introduction in 2015.
Key Proposals:
Flexibility in Adopting Trading Plans :
- Sebi’s proposal aims to make it easier for senior management and Key Managerial Personnel (KMP), who often possess UPSI, to trade in securities compliantly.
- The current regulatory requirements for trading plans, introduced in 2015, have been considered onerous, leading to their low popularity. This has prompted Sebi to consider revisions.
Revisions in Cool-off and Coverage Periods:
- A key recommendation is to reduce the minimum cool-off period between the disclosure of a TP and its implementation from six months to four months.
- The minimum coverage period requirement is also proposed to be reduced from twelve months to two months
Removal of Blackout Period:
Sebi plans to eliminate the blackout period that currently prohibits top corporate executives with UPSI from trading in their company’s shares. This blackout period typically begins from the end of a financial period and lasts until 48 hours after the announcement of financial results
Setting Price Limits:
- Insiders may have the flexibility to set price limits during the formulation of TPs, i.e., upper price limits for buy trades and lower limits for sell trades, within +/-20% of the closing price on the date of submission of TP.
- If the price of the security during execution is outside the set price limit, the trade will not be executed. If no price limit is opted for, the trade must be undertaken irrespective of the prevailing price.
Contra-Trade Provisions and Disclosure Requirements:
Contra-trade provisions are proposed to apply to trades executed under TP. Furthermore, there should be a disclosure of TP proposed to be done within two days from the date of approval of such a plan to stock exchanges
Disclosure Formats:
- Currently, there is no prescribed format for TP disclosure. However, they typically contain personal details like the name and designation of the insider, along with the planned trades.
- The working group suggested masking personal details of the insider in TP or continuing with the existing manner of TP disclosure with personal details of insiders.
- To balance potential misuse concerns and privacy issues, a third alternative has been proposed: making two separate disclosures of TP – a full and confidential disclosure to the stock exchange and a disclosure without personal details to the public through the stock exchange.
Feedback and Public Comments: Sebi has sought public comments on these proposals until December 15, indicating its openness to stakeholder input on these significant changes
Significance of the Changes:
Easier Compliance: The proposed changes aim to simplify compliance for individuals perpetually in possession of UPSI.
Balancing Privacy Concerns: By offering alternatives for disclosure formats, Sebi seeks to balance privacy and safety concerns of insiders with the need for transparency in the market.
Promoting Fair Trading: These changes will allow insiders to trade in a manner that doesn’t exploit UPSI, ensuring a more level playing field in the market.
Encouraging Adoption of Trading Plans: The proposed changes could make trading plans more attractive and practical for insiders, leading to greater adoption.
Implications:
For Insiders: These changes would provide greater flexibility and potentially reduce the complexities involved in adhering to insider trading rules.
For the Market: The proposals could lead to increased transparency and fairness in the market, as insiders would have structured and disclosed plans for trading.
Sebi’s proposal to ease trading plans for company insiders marks a significant step towards balancing regulatory compliance with the practical needs of those holding UPSI. The proposed changes, by making trading plans more flexible and less onerous, aim to enhance the effectiveness of insider trading regulations while addressing privacy and safety concerns of the insiders. As the capital market regulator awaits public feedback, these changes could lead to a more nuanced and effective framework for insider trading in India.