Guide to PIT Documentation
By Vinod Kothari & Company (corplaw@vinodkothari.com)
Comprehensive changes were done in SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’) vide SEBI (Prohibition of Insider Trading) Amendment Regulations, 2018[1] (effective from April 1, 2019). Recently, minor amendment has also been made in disclosure requirements by members of promoter group vide SEBI (Prohibition of Insider Trading) Amendment Regulations, 2019[2] (effective from January 21, 2019)
Post these changes, listed companies are required to put in place a system of internal controls, with responsibility being cast at various levels, including the Board of Directors, audit committee, CEO, and compliance officer. There will also be required comprehensive data keeping, when information is shared on need-to-know basis with people inside the organisation and those outside. While putting in place appropriate internal controls on insider trading is not merely a matter of documentation, proper documentation is to key to a structured, guided approach to these controls, serving both as a source of reference, as also a checklist to take stock of what all is required to be done.
The following is a quick guide to the needed documentation:
Document | Intended for | Broad contents |
Internal Control Manual – non-public document | The BoD, audit committee and the CEO, Compliance Officer, laying down the organisation-wide approach to defining UPSI, identification of places where UPSI may arise, ensuring integrity and security of UPSI, manner of disclosure of UPSI, etc. |
o BoD o Audit Committee o CEO o Compliance officer
o Frequency of review o Manner of review, with reference to events which were regarded as UPSI, whether such UPSI were shared in the manner expected, instances of leaks, if any, instance of breaches of the Code, efficiency of sensitization process, etc. o Strengthening of internal control
|
Code of Conduct to Regulate, Monitor and Report Trading by -non-public document | All designated persons |
|
Code of Fair Disclosure – public document | The listed entity – its approach to handling disclosures |
|
Compliance Manual | Compliance Office |
o Periodic checks to ensure that determination and transmission of UPSI was done in accordance with the Internal Control Manual o Maintaining digital database for sharing UPSI with insiders and outside, except relevant DPs. Ensuring that the digital database platform for DPs is tamper-proof, searchable, and date-stamped o Coordinating with the Determination committee on applying tests of materiality whether an information is UPSI or not
o Defining and identifying DPs o Obtaining data about DPs
o Generic black outs o Selective black outs o Restricted/ Grey list
o Obtaining declarations o Sensitising the individual about the provisions of the Regulations
o By DPs; o By employees; o By other insiders
o Sensitising senior management about silence period, role and responsibilities in disclosure of information, investor meets, analyst meets, etc. o Sensitising employees about the Regulations and Codes o Answering queries
o Detection of leak; o Identifying manner of leak; o Escalation of information and producing before Audit Committee; o Action against the guilty; o Informing SEBI, sensitizing employees, plugging the gaps.
|
[1] https://www.sebi.gov.in/legal/regulations/dec-2018/securities-and-exchange-board-of-india-prohibition-of-insider-trading-amendment-regulations-2018-dated-december-31-2018_41570.html
[2] https://www.sebi.gov.in/legal/regulations/jan-2019/securities-and-exchange-board-of-india-prohibition-of-insider-trading-amendment-regulations-2019-dated-january-21-2019_41761.html
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