Sebi proposes flexibility in framework relating to 'trading plans' under insider rules

New Delhi: Capital markets regulator Sebi on Friday came out with a proposal to provide flexibility in adopting trading plans by persons, who are perpetually in possession of unpublished price-sensitive information.

Under the rule, 'Trading Plans' (TP) enable persons like senior management or Key Managerial Personnel (KMP), who are perpetually in possession of Unpublished Price Sensitive Information (UPSI), to trade in securities in a compliant manner.

"Since the introduction of trading plans in 2015, data and market feedback suggest that the current regulatory requirements in respect of trading plans are onerous and consequently, trading plans are not very popular," Sebi said in its consultation paper.

Accordingly, Sebi constituted a working group that was mandated to review the provisions of TP under the insider trading rules.

As per the consultation paper, the working group has recommended that a minimum cool-off period between disclosure of TP and implementation of TP should be reduced to four months from six months at present.

In addition, the minimum coverage period requirement should be slashed to two months from the current twelve months.

It has also been suggested that the requirement of black-out period for trading in TP should be done away with.

"The insider shall have flexibility, during formulation of TP, to provide price limits i.e. upper price limits for buy trades and lower price limits for sell trades. Such price limit shall be within +/-20 per cent of the closing price on date of submission of TP."

"If price of the security, during execution, is outside the price limit set by the insider, the trade shall not be executed. If no price limit is opted for, the trade has to be undertaken irrespective of the prevailing price," the working group has recommended.

It has been suggested that contra-trade provisions should be applicable on trades executed under TP as well and there should be a disclosure of TP proposed to be done in two days from the date of approval of such plan to stock exchanges.

While there is no prescribed format for disclosure of TP, it typically contains the personal details such as name and designation of the insider along with the trades planned to be undertaken.

The working group suggested to mask personal details of insider in TP or alternatively continue with the existing manner of TP disclosure with personal details of insiders.

With a view to balance the problem of potential misuse and privacy and safety concerns, a third alternative has been suggested to make two separate disclosures of TP  -- full and confidential disclosure to stock exchange and disclosure without personal details to public through the stock exchange.

The Securities and Exchange Board of India (Sebi) has sought public comments on the proposals till December 15.

Going by the regulatory framework, the prohibition on insider trading is based on the premise that trading in a security by a person would be influenced by the UPSI in their possession, which is not accessible to others in the market.

However, insiders are allowed to trade, provided they are not in possession of UPSI and subject to compliance with other provisions of insider trading rules.

These insiders like those in senior management, who have a very small window for carrying out their trades, may need to trade for purposes such as creeping acquisitions and for compliance with minimum public shareholding norms. Sometimes, they may wish to dispose of the shares acquired through exercising stock options.