FAQs on Structured Digital Database
Loading…
Reload document 
Open in new tab Our other materials on the topic:
Loading…
Loading…
Comments on Consultation Paper on inclusion of Mutual Fund Units in PIT Regulations
– Team Corplaw | corplaw@vinodkothari.com
Consultation Paper on Applicability of SEBI PIT Regulations to MF units
Loading…
SEBI: Insider trading norms should apply to fund managers
Additionally invites comments on the applicability in case of units of pooled investment vehicle
Vinita Nair | Senior Partner, M/s Vinod Kothari & Company
Pledge as transfer: Several SEBI Regulations may require review post SC Ruling
– Vinita Nair | Senior Partner, Vinod Kothari & Co. | corplaw@vinodkothari.com
Hon’ble Supreme Court, in the matter of PTC India Financial Services Limited v. Venkateshwar Kari and Another (‘PTC India ruling’), brought out a very important distinction between the meaning of ‘beneficial owner’ under the Depository law, and the right of the pledgee/ pawnee/ security interest holder) to cause the sale of goods pledged by pledgor/ pawnor in terms of the rights arising under the pledge[1]. The PTC India ruling inter-alia holds that “beneficial ownership” in the context of the Depositories Act should not be confused with beneficial ownership in law. Getting registered as a “beneficial owner” in terms of Section 10 of Depositories Act, 1996 read with Regulation 58 (8) of the SEBI (Depositories and the Participants) Regulations, 1996[2] (‘Depository law’) does not amount to any transfer of title to the pawnee – it is merely a procedural precondition to sale by the pawnee. It further stipulates that there is no concept of ‘sale to self’ by the pledgee and that the pledgee is bound by the two options provided under Section 176 of the Indian Contract Act, 1872 (‘ICA, 1872’), viz., right to bring a suit against the pawnor and retain the goods pledged as collateral security, or sell the thing pledged on giving reasonable notice to the pawnor and sue for the balance, if any. This ruling triggers the need to review current practice followed by companies and also validity of orders pronounced by Securities Appellate Tribunal (‘SAT’) and SEBI from time to time w.r.t. pledge.
The Apex Court referred to the decision of Securities Appellate Tribunal (‘SAT’) in the matter of Liquid Holdings Private Limited v. The Securities Exchange Board of India[3] where SAT held that the banks being recorded as beneficial owners of the shares pursuant to invocation of pledge became the members of the target company and subsequent transfer of the said shares by the banks back to the appellants resulted in purchase by the appellants attracting the open offer obligations under SEBI (Substantial Acquisition and Takeovers) Regulations, 1997 [Repealed by SEBI (Substantial Acquisition and Takeovers) Regulations, 2011] (‘Takeover Code’). The Apex Court observed that SEBI should examine the provisions of Depository law and the Takeover Code to avoid discord or ambiguity resulting in instability or confusion especially on applicability of Takeover Code when the pawnee exercises his right to be recorded as a ‘beneficial owner’, while reserving his right to sell the pledge. Additionally, in the author’s view, there is an equal need to examine the applicability of SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’) in the context of pledges[4], for reasons discussed in the latter part of this article.
Read more →Broken Pledge? Apex Court reviews the law on pledges
By Vinod Kothari, Managing Partner, Sikha Bansal, Partner and Shraddha Shivani, Executive | corplaw@vinodkothari.com
The Supreme Court ruling in PTC India Financial Services Limited v. Venkateshwar Kari and Another is significant in many ways – not that it categorically rewrites the law of pledges which is settled with 150 years of the statute[1] and even longer history of rulings, but it surely refreshes one of the predicaments of a pledge. Importantly, since most of the pledges of securities currently are in the dematerialised format, it brings out a very important distinction between the meaning of ‘beneficial owner’ under the Depository law, and the right of the pledgee (a.k.a. pawnee or security interest holder) to cause the sale in terms of the rights arising under the pledge. Also, very importantly, the SC dwells upon the essential principle of equity of redemption in pledges and renders void any provision in the pledge agreement which allows the pledgee to make a sale of the pledged article without notice to the pledgor, or to forfeit the pledged article and convert the same as pledgee’s own property. There are also observations in the ruling that seem to give an indefinite time to the pledgee for the sale of the pledged property – this is a point that this article discusses at some length.
Read more →Applicability of insider trading regulations to pooled investment vehicles: A discussion on extent and rationale
- CS Sikha Bansal, Partner and CS Aisha Begum Ansari, Manager | corplaw@vinodkothari.com
| The article has also been published on IndiaCorpLaw – read here |
Regulatory framework for surveillance of DPs
SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regs.’), although prohibit trading on the basis of unpublished price sensitive information (UPSI) by any “insider” (which includes even an accidental insider or an outsider having come to possess UPSI); however, from a surveillance and compliance system perspective, the PIT Regs. focus on certain specific insiders called designated persons (DPs). Trading in securities of the listed company by the DPs is sought to be “regulated, monitored and reported” by the Code of Conduct (reg. 9 read with Schedule B) which, inter alia, provides for (a) bar on trading while the trading window is closed; (b) prior clearance by the compliance officer while the trading window is open subject to certain declarations; (c) bar on short-term reversal trades; etc. Another article deals with a detailed discussion on the manner in which ‘insiders’, ‘connected persons’ and ‘designated persons’ are dealt with under PIT Regs.
Similar framework has been envisaged in case of intermediaries and fiduciaries who deal with listed companies. In such cases, the compliance officer of such intermediary/ fiduciary is required to maintain a ‘restricted list’ of securities, which is used as the basis for approving or rejecting the application for pre-clearance of trades by the DP. The DP may trade in the securities of a listed client company which is not in the restricted list subject to pre-clearance by the compliance officer.
Hence, there is no blanket prohibition of trading in the listed securities by the DPs; although, there are conditionalities involved. Very recently, there have also been concerns around investment by DPs in the units of pooled investment vehicles (as we discuss below).
Read more →Insiders, Connected Persons, and Designated Persons: Demystifying the Quandary of ‘Insider’ Trading Terms
– Sikha Bansal, Partner, Vinod Kothari & Company (sikha@vinodkothari.com)
Securities law in India, as in most other countries in the world, prohibits ‘insider trading’ and seeks to impose
stiff penalties including custodial sentence to ‘insiders’ who violate insider trading norms – relevant provisions
are contained in section 12A and section 15G of the Securities and Exchange Board of India Act, 1992. The
SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘Regulations’), which succeeded the erstwhile 1992
regulations, have been framed by SEBI to provide for a detailed framework for the same. It may be noted that,
while the Regulations broadly put a restriction on insider trading, the focus is on certain specific insiders –
specified to be ‘designated persons’ – whose trading in securities of the listed company is sought to be
“regulated, monitored and reported” in a certain manner and the ‘connected persons’.
The article has been published in August, 2021 edition of ICSI Chartered Secretary journal and can be read here, from Page 70 onwards.
Round-up of regulatory updates during 2021
We have attempted to collate all major regulatory amendments notified throughout the year, with our resources on the same. Below we present a regulatory round-up for the year 2021, be it for MCA, SEBI, RBI or the like, along with the links to our major articles/ FAQs on the same.
Our youtube video giving a quick view on the same can be accessed at – https://www.youtube.com/watch?v=WJbJx2jgK9A
This version: 4th December, 2021
Discontinuation of manual disclosures under PIT Regulations
September 09, 2020 Circular: https://www.sebi.gov.in/legal/circulars/sep-2020/automation-of-continual-disclosures-under-regulation-7-2-of-sebi-prohibition-of-insider-trading-regulations-2015-system-driven-disclosures_47523.html
June 16, 2021 Circular: https://www.sebi.gov.in/legal/circulars/jun-2021/automation-of-continual-disclosures-under-regulation-7-2-of-sebi-prohibition-of-insider-trading-regulations-2015-system-driven-disclosures-for-inclusion-of-listed-debt-securities_50572.html
August 13, 2021 Circular:https://www.sebi.gov.in/legal/circulars/aug-2021/automation-of-continual-disclosures-under-regulation-7-2-of-sebi-prohibition-of-insider-trading-regulations-2015-system-driven-disclosures-ease-of-doing-business_51848.html
Understanding Silent Period for listed entities
By CS Aisha Begum Ansari (aisha@vinodkothari.com)
Introduction
When you go silent, you may be doing a soul searching, as for example, in meditational techniques. However, in case of listed entities, silent period is a period just before declaration of financial results, to ensure that there is no accidental leakage of confidential information. Silent period is different from “trading window closure” that most corporate professionals in India are familiar with. However, this article discusses the relevance of silent period, as a subset of the trading window closure, and its relevance to listed entities in India. While exploring the topic, the author also makes a study of the global laws around silent period.
Why silent period?
Insider trading is a ‘white collar’ crime that seeks to exploit the unpublished, non-democratic information (that is, what is not available in public domain) to the advantage of a select few, and to the disadvantage of the market in general. Since, it is a fraud upon the market in general, it has always been a significant topic for the securities market regulators around the globe. In India, Securities and Exchange Board of India (‘SEBI’) has framed the regulatory framework to curb the insider trading called as SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’).
The material inside information is generally accessed by the top executives and employees of the company. To avoid the exploitation of such information, the company prohibits them from trading in its securities while having access to such information. The preventive framework of insider trading does not just end by prohibiting the employees from trading; it also needs to ensure that such material inside information is not leaked outside the organization. There are many ways used by the insiders to leak such information such as sharing the same on social media, sharing of information during analyst or institutional investor meets, etc.
Silent period is different from trading window closure. Silent period is when the company’s top executives, say that CEO, CFO etc. will refrain from doing public communications altogether. The intent is to ensure that there is no interaction with investors or public at large, so as to avoid unintended slippage of information. Currently, SEBI regulations do not require companies to mandatorily observe a silent period; therefore, companies may choose to adopt this practice by way of their Code of Fair Disclosure.
What is silent period?
A silent period (also known as quiet period) is a stipulated time during which a company’s senior management and investor relation officers do not interact with the institutional investors, analysts and the media. The purpose of the silent period is to preserve the objectivity and avoid the appearance of the company providing insider information to select investors. During the silent period, the company does not make any announcements that can cause a normal investor to change their position on the company’s securities.
Is it different from trading window closure?
Trading window closure period (also known as blackout period or closed period) refers to the period during which the employees of the company who have access to material inside information are prohibited from trading in the securities of the company. In some of the developed countries, the securities market regulators give a freehand to the companies to decide the period during which the trading window shall be closed. In India, the PIT Regulations provide that the companies shall close the trading window from the end of the closure of the financial period for which results are to be announced till 48 hours after the disclosure of financial results to the stock exchanges. For any other material inside information, SEBI has given the responsibility to the compliance officers of the companies to close the trading window when the employees can reasonably be expected to have possession of inside information.
Silent period differs from the trading window closure in such a way that trading window closure prohibits the employees to trade in the securities of the company while having access to material inside information and silent period prohibits or restricts the company’s spokespersons to interact with the institutional investors or analysts. The purpose of trading window closure is to prohibit trading on the basis of inside information and the purpose of silent period is to prohibit communication of inside information illegitimately.
Duration of silent period
The PIT Regulations or any other regulatory framework in India do not provide for the requirements of silent period. So, the duration of silent period differs from company to company. Some companies specify the silent period as 20-30 days before the declaration of financial results till the date of disclosure and some companies align the silent period with the trading window closure period. The following table gives the synopsis of the practice followed by the Indian listed entities regarding silent period:
| Name of the Company | Practice followed |
| Mahindra & Mahindra Limited | Silent period commences from 20 days before the declaration of financial results till the date of disclosure of results |
| Tata Consultancy Services Limited | Quiet period starts 20 days before the declaration of financial results till the date of disclosure of results |
| HCL Technologies Limited | Silent period is same as trading window closure period |
| Asian Paints Limited | Silent period is observed between the end of the period and the publishing of the stock exchange release for that period |
| Wipro Limited | Quiet period commences from 16th day of the last month of the quarter and ends with 48 hours after earnings release. |
| Infosys Limited | Silent period is observed between the 16th day prior to the last day of the financial period for which results are required to be announced till the earnings release day. |
Thus, it can be concluded that the silent period is smaller than the trading window closure period.
Analysts/ investors meets during silent period
Analysts/ investors meets can be a medium of leak of material inside information, therefore, the companies avoid interaction with them during trading window closure period. So, does it mean that companies completely abstain from interacting with the analysts and investors? While the answer may differ from company to company and the policies adopted by them for communication with analysts and investors. Some companies completely refrain from the analysts/ investors meets while some companies interact with them and discuss the past and historical information which is already available in public domain and general future prospects of the company, dodging the specific questions relating to the material inside information.
Guidelines for Investor Relations for Listed Central Public Sector Enterprises[1]
While the regulations framed by SEBI are silent about the silent period, the Guidelines for Investor Relations for Listed Central Public Sector Enterprises issued by the Department of Disinvestment, Ministry of Finance, Government of India, provides for the duration of silent period and obligations of the public sector enterprises in this regard. The Guidelines advise that the silent period should commence 15 days prior to the date of Board meeting in which financial results are considered and end 24 hours after the financial results are made public. The Guidelines requires the companies to abstain from meeting the analysts and investors and not communicate with them unless such communication would relate to the factual clarifications of previously disclosed information.
International practice with respect to silent period
| Country | Trading window closure period | Silent period | Analyst meet during silent period |
| United States of America (USA)[2] | USA laws do not provide any specific timeline for trading window closure period. Thus, the companies are free to determine it | There are two types of silent period prevalent in USA:
1. When the company makes an Initial Public Offering (‘IPO’) – the Securities Exchange Commission (‘SEC’) mandates such companies to maintain a silent period from the date of registration with SEC which lasts till 40 days after the securities begin to trade on the stock exchanges. Such silent period is heavily regulated by the SEC. 2. During finalization of quarterly results – the silent period is not clearly defined by SEC. |
During the silent period, the interaction with the analysts and investors is reduced. The companies either go completely silent or they speak about only past and historical information. |
| United Kingdom (UK)[3] | Unlike USA, the UK laws prescribe the trading window closure period. Article 19.11 of Market Abuse Regulations specifies the period of trading window closure starting from 30 calendar days before the announcement of an interim financial report or a year-end report till the second trading day after announcement of financial report. | UK laws do not comment anything about the silent period. Thus, the companies determine the silent period as per their own discretion.
|
Since UK laws do not provide for silent period, the companies, as per their discretion, avoid interactions with the analysts and investors during such period.
|
| Canada[4] | Para 6.10 of National Policy on Disclosure Standards (‘Policy’) discusses about blackout period. It states that the company’s insider trading policy should specify the period which may mirror the quiet period. | Para 6.9 of the Policy talks about quiet period. While the Policy does not prescribe the duration of quiet period, it states that the period should run between the end of the quarter and the release of a quarterly earnings announcement. | The Policy states that the company need not completely stop communicating with the analysts and investors during the quiet period, but the communication should be limited to responding to inquiries concerning publicly available or non-material information. |
Conclusion
After discussing the practices followed by the Indian listed companies and the regulatory framework of other developed countries, it can be concluded that the concept of silent period is not something new, though unregulated. Some companies align the silent period with the trading window closure period while some provide for lesser duration for silent period. Some companies completely abstain from interacting with the analysts and the institutional investors during the silent period whereas some prefer discussing the generally available information only.
[1]https://www.dipam.gov.in/dipam/downloadFile?fileUrl=resources/pdf/capital-market-regulation/IR_Guidelines_website.doc
[2] https://www.irmagazine.com/reporting/six-commonly-asked-questions-and-answers-about-quiet-periods
[3] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014R0596&from=EN
[4] http://ccmr-ocrmc.ca/wp-content/uploads/51-201_np_en.pdf
Other relevant materials of interest can be read here –
http://vinodkothari.com/2021/07/step-by-step-guide-for-disclosure-for-analysts-investors-meet/
http://vinodkothari.com/2021/05/sebi_defines_investors_meet/