Physical disclosures to continue till March 31, 2021
Updated as on September 23, 2020
– CS Harshil Matalia, Assistant Manager, Vinod Kothari and Company (firstname.lastname@example.org)
SEBI in its Board meeting dated June 25, 2020, had discussed about necessary amendments to be made in SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’). While the other amendments were implemented, the amendment relating to automating continual disclosures requirement under Regulation 7(2) of the PIT Regulations was pending to be implemented. SEBI vide gazette notification dated July 17, 2020 notified amendments in PIT Regulations through SEBI PIT (Amendment) Regulations, 2020. As per these amendment regulations, Regulation 7(2)(c) was inserted granting enabling power to SEBI for prescribing manner of submitting System Driven Disclosures (SDD).
SEBI vide circular dated September 09, 2020 (‘present Circular’) has issued the manner of providing SDD under Regulation 7(2). This article covers brief summary of the present Circular.
Earlier, in December 2015 SEBI had notified SDD in the first phase shall pertaining to acquisition/disposal of equity shares by promoters/promoter group based on specified thresholds under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘SAST Regulations’) and PIT Regulations and pledge of equity shares by promoters/promoter group under the SAST Regulations. Thereafter in May 2018 next phase of SDD was implemented for disclosure under Reg 29 (1) and 29 (2) of SAST Regulations by non-promoters and continual disclosures under Reg. 7 (2) of PIT Regulations for directors and employees. Refer Figure 1: Flow of events in relation to SDD
With introduction of present Circular the aforesaid circulars dated December 01, 2015, December 21, 2016 and May 28, 2018 stands superseded with respect to implementation of SDDs under PIT Regulations. It continues to remain in force in relation to disclosures under SAST Regulations.
Figure 1: Flow of events in relation to SDD
Applicability of present Circular
SDD under PIT Regulations is applicable for continual disclosures relating to trading in equity shares and equity derivative instruments i.e. Futures and Options of the listed company (wherever applicable) by the entities by members of promoter group and designated persons in addition to the promoters and directors of the company (collectively referred as ‘Entities’). Therefore, at this stage, continual disclosure w.r.t. trading in listed debt instruments or listed preference shares are not system driven and requires disclosure in the manner provided in Reg. 7 (2) as discussed below.
System Driven Disclosure
As per Regulation 7(2) of PIT Regulations, every promoter, member of the promoter group, designated person and director of every company are required to disclose to the company, within two trading days, about the transaction related to the acquisition or disposal of securities if the value of such transaction, either individually or combined value of series of transactions exceed ten lakh rupees over any calendar quarter. Also, there is an onus on the company to intimate information about such transaction to the stock exchange on whose platform the securities of such company are listed, within two trading days of receipt of the disclosure or on becoming aware of such information.
Entities are required to comply with existing system for providing disclosure to the company under PIT Regulations as applicable to them till March 31, 2021. However, depositories and stock exchanges are required to adopt suitable arrangement for generating SDDs under PIT Regulations and such disclosures shall be disseminated on the website of respective stock exchanges w.e.f. October 01, 2020.
Process of Implementation
Pursuant to SEBI circular dated May 28, 2018, the listed entity was required to select one of the depositories as a ‘Designated Depository’ (DD)for the purpose of disclosure of data for that particular company.
Pursuant to the present Circular, the listed entity shall provide the information including PAN number of Entities to the DD in manner and format prescribed by the depositories within 10 days of this circular, i.e. upto September 19, 2020. SEBI has received certain representations from listed companies for extending the due date for sharing information to DD. In this regard, SEBI has informed the stock exchange about the extension of due date till September 30, 2020.
However, in case of PAN exempted entities, the listed company shall provide demat account number of entities. The DD shall share such information with other depository.
In case of subsequent changes in the details of the Entities, the listed company shall update the DD, on the same day and the DD shall share such updated information to other depository on the same day on which information received from the listed company.
Based on information of PAN or demat account number, as the case may be, the depositories shall tag such demat accounts in their system at ISIN level. This would facilitate depositories to track trading activities of Entities and to monitor ceiling prescribed under Regulation 7(2) of PIT Regulations for the purpose of disclosure requirements.
The depositories shall provide the following data regarding tagged demat account to the stock exchanges on daily basis.
- Details of transactions for pledge/revocation/invocation of shares and other encumbrances such as NDU etc. of the entities.
- Details of off market transactions of the entities.
- Details of transmission of shares of the entities.
- Details of corporate actions such as ESOPs, Bonus, Rights, etc. of
- the entities
- Additionally, details of market transfers in case of PAN Exempt entities.
Based on the above data, stock exchange will identify transactions carried out in their trading system and such trading information shall be shared by stock exchange with other stock exchanges where the securities of the company are being listed. Every stock exchange shall consolidate such information of various trading activities and if the consolidated transaction value exceeds the ceiling prescribed under PIT Regulations then the Stock exchange shall disseminate information about these transactions on its websites.
Refer Figure 2: Flow of events for process implementation.
Figure 2: Flow of events for process implementation
Whether PAN/Demat Account number of immediate relatives shall also to be provided?
The primary intention of PIT Regulations is to prevent abuse by trading in securities of the company when in possession of unpublished price sensitive information (UPSI). Therefore, it is intended that disclosure requirement would be applicable not only to those persons who have executed any trade in securities while in possession of UPSI but also applies to immediate relative of person concerned or any other person for whom the person concerned takes any trading decisions.
As per para 14 of Schedule B of PIT Regulations, designated persons are required to disclose names and PAN details of immediate relatives along with persons to whom designated person shares material financial relationship. The said paragraph was inserted by SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018, with effect from April 01, 2019.
Therefore, considering the intent of the law as a whole, the PAN details of immediate relatives of person concerned shall also to be provided to the designated depository even though it has not been specifically provided in the circular.
Procedure for submitting information to DD
In terms of SEBI circular dated May 18, 2018, the company may have already provided the information including PAN of the directors and employees (CEO and upto two levels below CEO) through NSDL’s issuer services portal under below mentioned categories/level.
CEO with Directorship
CEO without Directorship
Employees upto two levels below CEO
For providing information including PAN of promoters, members of promoter group, and designated persons, additional categories/levels have been added:
Other Designated Person
For providing the information as per aforesaid SEBI circular dated September 9, 2020, the company shall follow the below mentioned process:
For Listed companies who have designated NSDL and registered on NSDL issuer portal following steps may be followed:
- Log-in to NSDL issuer services portal https://issuer.nsdl.com by using existing log-in credentials received from NSDL.
- There are two options by which the company can provide information about Promoters, members of the promoter group, designated persons to NSDL on the issuer services portal:
Option 1 – Issuer can provide the aforesaid information by directly capturing data on the screen available under menu ‘Add Promoter / Designated Person Details’ under the tab ‘System Driven Disclosure’.
Option 2 – Alternatively, Issuers can upload the details through file upload facility available under the menu ‘Upload Promoter / Designated Person Details’ under the tab ‘System Driven Disclosure’. The format for upload is available in Annexure I and how to create/fill up the upload file is given in Annexure III. Also refer to Annexure II as a reference file i.e. example of data will look post creating in upload file.
- Once the details of Promoters, members of the promoter group, designated persons and directors are provided on NSDL issuer services portal, the same can be viewed under the menu ‘ View/Delete Promoter / Designated Person Details’.
- NSDL will identify demat accounts in NSDL Depository System based on the PAN details of Promoters, members of the promoter group, designated persons and directors provided by Companies. The same can be viewed under the menu ‘View Demat Account Details’.
In case users have forgotten their password, they can reset their password by clicking on the ‘Forgot password’ link on the login page of Issuer portal. The user will need to follow to below mentioned steps:
- Enter the User ID in the ‘Username’ field and click ‘Forgot password’ link;
- User will be need to click on radio button for OTP;
- User will be prompted to enter the mobile number registered with NSDL and click on ‘Send Code’;
- On receipt of the OTP on the registered mobile number, user will need to enter the same in the said field and submit;
- Once the OTP validation is done User will have the option to enter their new password and submit.
Whether PAN of the entire promoter group to be given to DD?
In order to enable the system to capture the trading activities of entire promoter group, the listed entity shall provide PAN/Demat account number, as the case may be, of all the members belonging to the promoter group irrespective of the fact that person belonging to promoter group is holding any shares or not.
Whether PAN details shall be provided separately for SAST disclosures?
Pursuant to SEBI circular dated December 01, 2015, listed companies were required to provide information about promoters and promoter groups of companies to the depositories through the RTA for the purpose of disclosures under SEBI (SAST) Regulations, 2011. The intent was to build an accurate database of the existing holdings at ISIN level of all the promoters / promoter group. However, SEBI vide circular dated September 23, 2020, informed that the same procedure is to be used for capturing PAN/Demat account details as mentioned in circular dated September 9, 2020 for SAST disclosures too. Therefore, erstwhile, where details of promoter or promoter group were required to be provided through the RTA, now the listed entity shall provide the same to the DD for all members of promoter group irrespective of their holdings. The idea behind the same is to align the practices of SDD for both PIT Regulations and SEBI (SAST) Regulations, 2011.
The automated process of generating disclosures under PIT Regulation will do away the instances of late filing of disclosures by the Entities or the listed company and will enable transparency in trading activities of Entities. SEBI may achieve its intention to create centralized database system by implementing such SDD process.
Our other writeups on the captioned subject:
- SEBI prescribes norms for structured digital database, system driven disclosures & CoC violations – Click here
- Presentation on recent amendments in PIT Regulations – Click here
- YouTube video: Click here
- Compliance by companies for system driven disclosures – Click here
- System-driven Disclosures in Securities Market- Now extended to Non-Promoters – Click here