Upsurge in UPSI list: Deemed UPSI or sensitivity dependant?

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Critical Reg. 30 events assimilate into ‘illustrative guidance list’ of UPSI as SEBI strives for EoDB and easier compliance requirement

Team Vinod Kothari & Company | corplaw@vinodkothari.com

The idea of unpublished price sensitive information (‘UPSI’) is something which companies have to guard as confidential until disclosed to investors, as it may materially impact the stock prices. Price sensitivity of an event has to do with the impact of the event on the company’s profitability, turnover, long-term or short-term prospects, shareholding base, etc. The identification of these events is done based on the materiality of the event to the business and business model. The more prescriptive the list supplied by the lawmaker is, the more one takes away the sense of responsibility and accountability to the corporate team that flags corporate events as material. If the lawmakers flag them all, or flag a lot, the very seriousness of tagging an information as price sensitive is taken away.

Pursuant to SEBI (Prohibition of Insider Trading) Amendment Regulations, 2025 (‘present amendment’) SEBI has amended UPSI definition, effective from  June 10, 2025[1] inserting a longer list of information, some of which may seem purely operational or business-as-usual for listed companies. Whether each of this information will be regarded as “deemed UPSI”, thereby requiring compliance officers to do the drill of structured digital database entry to even trading window closure every time such an event occurs? While the amended definition seems indicative of this, the intent of the regulator seems otherwise. This article tries to explain.

Linking UPSI determination with material events under Reg 30 : the journey

The idea of linking UPSI determination with Reg 30 events is not new. In fact, the definition of UPSI under PIT Regulations originally included “material events in accordance with the listing agreement”, within the definition of UPSI. The same was subsequently omitted vide Amendment Regulations, 2018 effective from 1st April, 2019.

The omission of material events under LODR from the definition of UPSI was a result of the recommendations of the Committee on Fair Market Conduct, under  the Chairmanship of Shri T.K. Viswanathan. The Committee noted that every material event under LODR is not necessarily price sensitive, and therefore, the explicit inclusion of the same as UPSI is not appropriate.

The Committee noted that the aforesaid regulation require disclosures of material events or information which may or may not be price sensitive. Accordingly, the Committee is of the view that all material events which are required to be disclosed as per the Regulation 68 of the LODR Regulations may not necessarily be UPSI under the PIT Regulations. Since, the definition of UPSI is inclusive, the Committee recommends the removal of explicit inclusion of “material events in accordance with the listing agreement” in the definition of UPSI.

Thereafter, SEBI vide a Consultation paper dated May 18, 2023, proposed restoration of material events under LODR in the definition of UPSI. The public feedback largely pointed out that all events or information under Regulation 30 of LODR Regulations may not have an impact on the price of securities, hence, it is not rational to extend the UPSI definition to all material events under Reg 30 of LODR.

In view of the same, another Consultation Paper was floated on 9th November, 2024 on expansion of the list of UPSI to include some specific events from Reg 30. Based on the public comments received on the Consultation Paper, SEBI in its Board Meeting dated 18th December, 2024 approved the said amendments to the definition of UPSI.

As mentioned above, the amendments have been notified vide the Amendment Regulations, 2025 effective from  June 10, 2025 providing a long list of Reg 30 events within the meaning of UPSI.

List of information under definition of UPSI: illustrative or prescriptive?

The definition of UPSI contains two parts – (a) subjective meaning of UPSI, and (b) a list of events that may be considered as UPSI. To this end, the definition of UPSI reads as:

“unpublished price sensitive information” means … and shall, ordinarily including but not restricted to, information relating to the following:

XXX

The present amendment pertains to the second part of the UPSI definition. A question would arise on whether the list of events may be considered as indicative, illustrative of what may constitute UPSI, or prescriptive, providing a deeming status of UPSI to such events/ information without assessment of the probability of price-sensitive impact of such information.

The answer to the aforesaid has to be traced back from the recommendations of the High Level Committee to Review the SEBI (Prohibition of Insider Trading) Regulations, 1992.

The Committee also felt that some illustrative examples of what would ordinarily constitute UPSI should be set out to clearly understand the concept. It would be important to ensure that regardless of whether the information in question is price-sensitive, no piece of information should mandatorily be regarded as ―UPSI. Towards this end, examples of events and developments information about which would ordinarily be regarded as UPSI, are listed – such as financial results, dividends, mergers and acquisitions, changes in capital structure etc.

XXX

To conclude, whether or not a piece of information is generally available or is unpublished would necessarily be a mixed question of fact and law. A bright line indicating the types of matters that would ordinarily give rise to UPSI are listed to give illustrative guidance. It could well also be possible that information from such events could be routine in nature and consistent with a long history. Information about the repetition of the same event on predictable lines would not render it to be UPSI unless deviated from. For example, the declaration of dividend at the same rate at which a company has declared dividend for the several years as per publicly stated dividend policy.

Hence, it can be well understood that the idea behind providing an illustrative list of events in the definition of UPSI is not to render the same as “deemed UPSI”, thus mandating the treatment of the same as UPSI. Rather, the intent is to provide illustrations for a better understanding of what may ‘ordinarily’, and not ‘mandatorily’, constitute UPSI.

As evident from the discussion in SEBI BM agenda, the events/ information added in the definition of UPSI pursuant to the present amendment are given for ‘illustrative guidance’. For instance, while addressing the comment in case of  routine fund raising in the usual course of business, SEBI acknowledged the fact that if the fund raising is routine in nature and on predictable lines it would not materially affect the price and thus, may not be UPSI. Similarly, in response to the comment on providing specific meaning of ‘impact on management’, it was stated that the same would make it prescriptive, which is not the intent of law.

Therefore, listed entities continue to have the power to determine UPSI based on the expected impact of such an event or information on the price of securities of such entities. The list of events under the definition of UPSI only provides an indicative guidance.

Applicability of the amendments

The Amendment Regulations, though notified on 11th March, 2025, are effective on the 90th day from the publication of the same in the official gazette, that is, 10th June, 2025. Does that mean that the listed entities are not required to identify an event falling under the ‘illustrative list’ as UPSI during the said period, even if the same is price-sensitive? Can a listed entity contend that the categorisation of an event as UPSI, where such an event is falling under the elongated “attention list”, though price-sensitive, is not mandatory for UPSI originating prior to 10th June, 2025?

In our view, such a stance cannot be taken. The intent of the regulations have also been such that required companies to evaluate every event or information, for potential price-sensitivity, and based on such judgement, categorise an information as UPSI until made generally available to the public at large. Therefore, one cannot take a view that such an event was not UPSI prior to the amendments becoming effective, and will take the character of an UPSI only after 10th June, 2025.

An example will make the case clearer. Concrete discussions with respect to a proposed fund raising commenced from 1st May, 2025. The board meeting for approval of the fund raising proposal will take place on 12th June, 2025. Will the listed entity be required to categorise the information as UPSI from 10th June, 2025 (effective date of applicability of the amendments) to 12th June, 2025 (board meeting date on which the final decision will be made and Reg 30 intimation will be provided to the stock exchanges making the information generally available)?

Here, what needs to be evaluated is whether, in accordance with the UPSI guidelines of the entity, the person(s) in-charge of the identification of UPSI has considered the information to be of a price-sensitive nature. If the answer is yes, the information should have been categorised as UPSI from 1st May, 2025 itself, regardless of the applicability of the amendments.

On the other hand, if the same was evaluated and not considered to be price-sensitive at the time the information was concretised, assuming there has been no further developments subsequently that would give the information the character of being price-sensitive, such an information would not require UPSI categorisation even after 10th June, 2025. A third scenario would be where the information was, in fact, price-sensitive from the time of its concretisation, that is, 1st May 2025, however, not evaluated for price-sensitivity on the account of not explicitly covered under the definition of UPSI. In such a circumstance, the information was actually an UPSI since 1st May, and should have been categorised as such from that time itself. Pursuant to the present amendments, such information that was price-sensitive but not taken care of in the appropriate manner, would now come under the “attention list” of the listed entities.

Need for elongating the ‘illustrative list’ of UPSI

The discussion above makes it clear that the elongated definition does not necessarily result in providing a deeming character of UPSI to the specified events/ information under Reg 30. In such a case, a question may arise on the relevance of providing such an elongated list of UPSI.

The need for the present amendment has been set out in the Consultation Paper and BM agenda of SEBI in the following manner:

However, contrary to expectations, a study conducted by SEBI along with stock exchanges, revealed that, after the amendment to the definition of UPSI in the PIT Regulations, which removed the expression “material events in accordance with  the  listing  agreement”,  by  and  large, companies  were  seen  to  be categorizing  only  the  items  explicitly  mentioned  in  PIT  Regulations  as  UPSI. The market feedback also suggested that most companies consider this to be a ‘uniform practice’. Therefore, in light of the above observations, SEBI felt that there exists a need to  review  the  definition  of  UPSI.

Events included in the ‘illustrative list’ of UPSI

A. Deemed material events (Para A of Schedule III) added to the UPSI list
Insertion in definition of UPSIRelevant clause in LODRDiscussion in CP/ BM AgendaVKCo guidance on UPSI categorisation 
Change in rating(s), other than ESG rating(s)New Rating(s) or Revision in Rating(s)Upward/ downward revision to be considered UPSI.New ratings for fresh issue of securities will get covered under ‘change in capital structure’ or ‘fund raising proposed to be undertaken;Considering ESG Ratings are at a nascent stage, SEBI has excluded ESG rating.Instances of revision may ordinarily have a price-sensitive impact.
Also, while withdrawal of ratings is not explicitly covered, it should also be covered
Fund raising proposed to be undertakenthe decision with respect to fund raising proposed to be undertaken including by way of issue of securities (excluding security receipts, securitized debt instruments or money market instruments regulated by the Reserve Bank of India), through …If the fund raising is routine in nature and on predictable lines it would not “be likely to materially affect the price of the securities” and thus may not be UPSI  It is common for NBFCs and other financial sector entities to raise funds through issuance of NCDs. Being routine in nature, such fund-raising would not constitute UPSI pursuant to the present amendment.  
Agreements, by whatever name called, which may impact the management or control of the companyAgreements covered by Clause (5) and (5A) of Para A of Part AOriginal proposal under CP required two conditions: (i) agreements   that   impact   the management and control of the company and (ii) are in the knowledge of the company   However, pursuant to BM, agreements impacting either ‘management’ or ‘control’ have been included.Usually agreements which may impact the management or control are price sensitive in nature. However, if the change is purely inter-promoter transfers or similar agreements, which may not impact the working or operations of the entity, a view may be taken
Fraud  or  defaults  by  the  company,  its  promoter,  director,  KMP,  or subsidiary  or  arrest  of  KMP,  promoter  or  director  of  the  company, whether occurred within India or abroadFraud or defaults by a listed entity, its promoter, director, KMP, SMP or subsidiary or arrest of KMP, SMP, promoter or director of the listed entity, whether occurred within India or abroadSMP excluded considering the same may not generally have a material impact on the price of securities of the listed entity. Such fraud, default or arrest should be in relation to the listed entity.  In determination of the materiality and hence, price-sensitivity of information under this clause, guidance may also be drawn from the ISN on Reg 30. Refer a brief note on the ISN here.  
Changes in KMP other than due to superannuation or end of term, and resignation of a Statutory Auditor or Secretarial AuditorChange  in  directors,  KMP  senior management, Auditor and Compliance Officer MD/WTD/CEO not proposed to be re-appointed may be potential UPSI. Resignation of CFO or CS may be usual movement across entities, and , may not be in the nature of UPSI. On the other hand, any resignation citing governance issues, including that of an independent director, though not covered explicitly in the definition, should be considered as UPSI. Similarly, every instance of resignation by the statutory or secretarial auditor may not be UPSI. For instance, resignation on account of bandwidth or personal limitations of the auditor. .Resignation on account of corporate governance concerns, or indicating frauds/ accounting lapses etc may be considered as UPSI.
Resolution  plan/  restructuring  or  one  time  settlement  in  relation  to  loans/borrowings  from banks/financial institutionsResolution plan/ Restructuring in relation to loans/borrowings from banks/financial institutions.   One time settlement with a bankNo threshold limit provided since the same pertains to Para A item under Schedule III. 
Admission of winding-up petition filed by any party /creditors and admission of application by  the  Tribunal  filed  by  the  corporate  applicant  or  financial  creditors  for  initiation  of corporate  insolvency  resolution  process  against  the  company  as  a  corporate  debtor, approval of resolution plan or rejection thereof under the Insolvency and Bankruptcy Code, 2016winding-up petition filed by any party / creditors   events in relation to the corporate insolvency resolution process of a listed corporate debtor under the Insolvency Code Filing a winding-up petition itself is a material event requiring intimation to the stock exchanges. Admission of such a petition is the second stage, and while the same may be ‘price-sensitive’, it is not clear as to what would be ‘unpublished’ for the purpose of ensuring PIT controls on the same.   This appears to be one of the instances of events emanating from outside the entity, and hence, relaxations w.r.t. SDD entries and trading window closure may be availed (see discussion below).
Initiation  of  forensic  audit,  by  whatever  name  called,  by  the  company  or  any  other  entity for detecting mis-statement in financials, misappropriation/ siphoning or diversion of funds and receipt of final forensic audit reportInitiation of Forensic audit a) The fact of initiation of forensic audit along-with name of entity initiating the audit and reasons for the same, if available; b) Final forensic audit report (other than for forensic audit initiated by regulatory / enforcement agencies) on receipt by the listed entity along with comments of the management, if any.While it was suggested to not consider receipt of final forensic report as UPSI, the suggestion was not accepted since the information regarding outcome of such forensic audit may also be UPSIIn our view, once the initiation of forensic audit is considered as UPSI, the said event, although disclosed as a material event, should continue to be considered as UPSI till the time the final forensic audit report is not made public.
Action(s)  initiated  or  orders  passed  within  India  or    abroad,  by  any  regulatory,  statutory, enforcement authority or judicial body against the company or its directors, key managerial personnel, promoter or subsidiary, in relation to the companyClause (19) and (20) of Para A of Part A of Schedule IIISMP excluded considering the same may not generally have a material impact on the price of securities of the listed entityThe explanation to the amended definition to UPSI provides that for the identification of events enumerated as UPSI, the guidelines for materiality referred to in para A of Part A will be applicable. Therefore, an imposition of penalty will require disclosure if the same exceeds the limits of Rs. 1 lakh by sector regulators/ enforcement agencies and  Rs.  10  lakhs for other authorities.   The materiality of an action taken vis-a-vis the price of the securities of the listed entity depends on various factors, such as criticality of the non-compliance warranting an action, severity of the action/ penalty, impact of the penalty on the reputation and profits of the listed entity etc.   Hence, not each instance of action taken or penalty imposed would require identification as UPSI.   Further, the UPSI under this clause, being an event emanating from outside the listed entity, relaxations with respect to SDD entries and trading window closure may be availed (see below)
B. Events determined as material (Para B of Schedule III) added to UPSI list
Insertion in definition of UPSIRelevant clause in LODRDiscussion in CP/ BM Agenda
Award or  termination  of  order/contracts  not  in  the  normal course of businessAwarding, bagging/ receiving, amendment or termination of awarded/bagged orders/contracts not in the normal course of businessExpected to have a significant impact on the revenue and profitability of the company. Materiality will be based on thresholds provided under Reg 30(4) of LODR read with the ISN on Reg 30.
Outcome of any litigation(s) or dispute(s) which may have an impact on the companyPendency of any litigation(s) or dispute(s) or the outcome thereof which may have an impact on the listed entityInitial order and pendency or any litigation is available in the public domain, hence, not UPSI.Materiality will be based on thresholds provided under Reg 30(4) of LODR read with the ISN on Reg 30.
Giving of guarantees or indemnity or becoming a surety, by whatever named called, for any third party, by the company not in the normal course of businessGiving of guarantees or indemnity or becoming a surety , by whatever name called, for any third party.Only such guarantees that are not in normal course of business will be UPSI Materiality will be based on thresholds provided under Reg 30(4) of LODR read with the ISN on Reg 30.
Granting,  withdrawal,  surrender,  cancellation  or  suspension  of  key  licenses  or  regulatory approvals.Granting, withdrawal , surrender , cancellation or suspension of key licenses or regulatory approvalsAs regards the suggestion of defining key licenses and regulatory approvals, the same being dependent on the industry or sector, the same has not been defined separately.   Here again, emphasis has been given on the likelihood of  materially  affecting  the  price  of  security  of  a  listed  entity for UPSI identification.

In our view, wherever an event is determined to be material by a listed entity, under Para B or Para C or any other residual clauses, such events are in the nature of UPSI. Thus, the clauses not expressly covered by the definition of UPSI, viz. product launch, capacity addition, strategic tie-up, loan agreements not in the normal course of business etc can also be in the nature of UPSI, based on its expected impact on the price of the securities of the listed entity.

Actionables pursuant to the revised definition of UPSI

As discussed above, the definition of UPSI, so far as the items specified thereunder is concerned, is illustrative and not prescriptive. Items that are of routine nature, or otherwise, are not expected to have a material impact on the price of securities of the listed entity can be excluded from UPSI categorisation. This requires a listed entity to first of all, have internal guidelines for identification of an event/ information as UPSI. Given the diverse items of information that may be material, it will be impossible to have a closed list of all; therefore, the list of potential UPSI items (UPSI Library) needs to be formulated by every listed entity based on probable impact on the relevant financial parameters (guidance may be drawn from the ISN on Reg 30 for Para B items), as well as feedback based on past events in the listed entity or relevant to such listed entity. The list should be (a) Dynamic – it will have to be populated regularly, based on a feedback system and (b) Granular – the more granular the items are, easier it will be to assign the first point of responsibility and to minimise the nodes or the stop-overs that information travels, from its first source of recognition to the ultimate centre.

Secondly, record is to be maintained with proper rationale for non categorization of an event or information as UPSI, particularly if the same falls within the illustrative list of UPSI as provided in the definition.

Needless to say, sensitisation of the relevant persons handling UPSI or such information that may be categorised as UPSI is crucial to ensure smooth functioning of the PIT controls.

Other amendments

In addition to the amendments made in the definition of UPSI, some guidance has been given with respect to UPSI not originating from within the listed entity.

  • Entry in Structured Digital Database (SDD)

For information not emanating from within the listed entity, the SDD entry may be done within 2 calendar days from the receipt of such information.

  • Trading window closure

For UPSI not emanating from within the listed entity, trading window closure is optional.

The SEBI Consultation Paper or BM Agenda does not have reference to the aforesaid amendments. However, it can be understood that in case of events not emanating from within the listed entity, the UPSI is neither germinated from the listed entity, nor does it have a journey as an UPSI prior to disclosure, since the disclosure is required to be made within a maximum of 24 hours from the receipt of such information.

The intent of trading window closure is to caution the Designated Persons against trading, while in possession of UPSI. However, for events emanating from outside the listed entity, there is hardly much time between the receipt of information by the listed entity and the publication of such information through stock exchange intimation, thus making it generally available. Refer a presentation on the trajectory of an information from UPSI to material event disclosure here (slide 28 onwards).

Hence, the closure of the trading window is not relevant in such circumstances. The concept of trading window closure and related compliances has been discussed in a short video here. Having said that, any person in receipt of UPSI is bound by the primary charging section of the PIT Regulations to ensure that no trade is undertaken by the person while in possession of UPSI, irrespective of whether the trading window is closed or not.

Conclusion

The present amendments bring in an illustrative list of items that may ordinarily be considered as UPSI, to provide guidance to the listed entities in ensuring compliance with the PIT Regulations in letter and in spirit. As discussed above, this cannot be taken to mean that a list of deemed UPSI has been provided, and the determination of UPSI remains with the listed entities based on the expected impact on the price of the securities. Further, while the new amendments are inspired from Reg 30 of LODR, the definition of UPSI is common for both equity and debt-listed entities. Here, it is also to be noted that Reg 51 of LODR, as applicable to debt-listed entities, requires disclosure of all price-sensitive information to the stock exchanges.

[1] 90th day from the date of publication in the Official Gazette.

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Critical Reg. 30 events assimilate into ‘illustrative guidance list’ of UPSI as SEBI strives for EoDB and easier compliance requirement

Refer amendment notified | Refer Consultation Paper

November 11, 2024 (updated on March 13, 2025)

– Vinita Nair | corplaw@vinodkothari.com 

If your idea of unpublished price sensitive information (‘UPSI’), which companies have to guard as confidential until disclosed to investors, is something which may impact the stock prices, you now have a longer list of things, which may seem purely operational or business-as-usual for listed companies, but still sitting in the long list of “deemed UPSIs” that SEBI (Prohibition of Insider Trading) Amendment Regulations, 2025 has inserted, thereby making compliance officers do the drill of structured digital database entry to even trading window closure every time such an event occurs. The amendment takes effect from June 9, 2025 .

In our view, price sensitivity of an event has to do with the impact of the event on the company’s profitability, turnover, long-term or short-term prospects, shareholding base, etc. The identification of these events is done based on the materiality of the event to the business and business model. The more prescriptive the lists supplied by the lawmaker are, the more one takes away the sense of responsibility and accountability to the corporate team that flags corporate events as material. If the lawmakers flag them all, or flag a lot, the very seriousness of tagging an information as price sensitive is taken away.

Does the present amendment go in the same direction of making the regulations more prescriptive? May not be the case necessarily as SEBI BM agenda clearly demonstrates that the intent was to provide illustrative guidance and not define a scope making the regulations prescriptive, in view of the EODB perspective. For e.g. in case of routine fund raising in the usual course of business, SEBI acknowledged the fact that if the fund raising is routine in nature and on predictable lines it would not materially affect the price and thus, may not be UPSI. It also took note of certain suggestions and considered them in the final amendment., for e.g. doing away with trading window closure requirements where UPSI is not emanating from within the listed entity, excluding change in ESG ratings from UPSI ambit, excluding reference of senior management in some cases etc.

Background:

The N.K. Sodhi Committee Report of 2015 , while reviewing the definition of UPSI which included ‘material events in accordance with the listing agreement’, emphasized that it would be important to ensure that regardless of whether the information in question is price-sensitive, no piece of information should mandatorily be regarded as “UPSI”. Thereafter, in 2018, noting that all material events which are required to be disclosed as per the LODR Regulations may not necessarily be UPSI under the PIT Regulations, the Committee on Fair Market Conduct , recommended the removal of the explicit inclusion of “material events in accordance with the listing agreement” contained within the definition of UPSI. As listed entities did not follow the principles laid down in UPSI definition, it was decided to elongate the list of deemed UPSI events to guide the entities better in UPSI identification.

Earlier in May 2023, SEBI had proposed considering every material event as UPSI. Based on the feedback received for earlier CP citing concerns of significant increase in compliance management and potential perpetual closure of trading window, SEBI had kept the proposal on hold till revisiting the framework for material events disclosure, market rumour verification, trading plan provisions etc.

In December, 2024 SEBI notified LODR amendments in Reg. 30 & Schedule III for EoDB (effective December 12, 2024). The Industry Standards Note issued in relation to Reg. 30 disclosures guide on the manner of ascertaining the expected impact on value relevant for the purpose of determining the materiality (read our article here). Trading Plans were made flexible (effective November 1, 2024) to enable persons perpetually in possession of UPSI be able to trade.

Present Amendment:

A. Deemed material events (Para A of Schedule III) added to the UPSI list

  1. Change in rating(s), other than ESG rating(s) [sub-clause vi]
    ■ Upward/ downward revision to be considered UPSI.
    ■ New ratings for fresh issue of securities will get covered under ‘change in capital structure’ or ‘fund raising proposed to be undertaken’;
    ■ Considering ESG Ratings are at a nascent stage, SEBI has excluded ESG rating.
    VKCo Comments: Rating revision need not necessarily result in security/ instrument going below investment grade or resulting in a breach of any covenant, to be considered as UPSI. By virtue of the present amendment, revision from AAA to AA+ or from AA to AA (-) will also be considered as UPSI, as it will impact the cost of funds, investor’s perspective etc.
  2. Fundraising proposed to be undertaken [sub-clause vii]
    VKCo Comments: Reg 29 covers intimation of fund raising by issue of securities, term loans are anyways excluded. While fundraising by way of issue of capital is deemed UPSI, every instance of debt issuance may not necessarily be UPSI. SEBI BM agenda further clarifies that if instances of fund raising are routine in nature then the particular would not materially affect the price of securities in the first place. Therefore, such fundraising events may not be considered as UPSI.
  3. Agreements, by whatever name called, which may impact management or control of the company. [sub-clause viii]
    VKCo Comments: Where the company has knowledge about the agreement.
  4. Fraud or defaults by the company, its promoter, director, KMP, or subsidiary or arrest of KMP, promoter or director of the company, whether occurred within India or abroad [sub-clause ix]
    VKCo Comments: Fraud and default to have the same meaning as assigned to them under LODR Regulations [Sch III, Part A, Para A (6)].
    ■ As explained in LODR, default by a promoter, director, key managerial personnel, subsidiary shall mean default which has or may have an impact on the listed entity.
    ■ Fraud, defaults, etc. by senior management may not generally have a material impact on the price of securities and therefore, the same has been not included within the ambit of the said clause.
  5. Changes in KMP, other than due to superannuation or end of term, and resignation of Statutory Auditor or Secretarial Auditor [sub-clause v]
    VKCo Comments: MD/WTD/CEO not proposed to be re-appointed may be potential UPSI. Further, resignation of CFO or CS for better prospects, while may result in a change, may not be in the nature of UPSI. Resignations citing governance issues should be considered as UPSI.
    ■ Similarly, every instance of resignation by the statutory or secretarial auditor may not be UPSI. Resignation on account of corporate governance concerns, may be considered as UPSI.
  6. Resolution plan/ Restructuring or one-time settlement in relation to loans/borrowings from banks/financial institutions [sub-clause x]
  7. Admission of winding-up petition filed by any party / creditors, admission of application by the tribunal filed by the corporate applicant or financial creditors for initiation of CIRP against the company as a corporate debtor, approval of resolution plan or rejection thereof under the Insolvency Code [sub-clause xi]
  8. Initiation of forensic audit (by whatever name called) by the company or any other entity for detecting mis-statement in financials, misappropriation/ siphoning or diversion of funds and receipt of final forensic audit report [sub-clause xii]
  9. Action(s) initiated or orders passed within India or abroad by any regulatory, statutory, enforcement authority or judicial body against the company or its directors, KMP, promoter or subsidiary, in relation to the company. [sub-clause xiii]
    VKCo Comments: Intent is to include matters covered in Clause 19 and 20 of Para A. Clause 19 items viz. search or seizure, re-opening of accounts, investigation may be in the nature of UPSI, but each of clause 20 items may not be UPSI. Actions like suspension, disqualification, debarment or closure of operations may be in the nature of UPSI. However, in case of fines & penalties, SEBI amended the monetary limits for disclosure of fine or penalty under clause 20 – Rs. 1 lakh for fine/ penalty imposed by sector regulators/ enforcement agencies (as provided in ISN dated February, 2025) and Rs. 10 lakhs for other authorities. Amounts lower than the thresholds are required to be disclosed on a quarterly basis as part of the Integrated Filing (Governance). While imposition of penalty or fine by sector regulators/ enforcement agencies reflect on the state of governance/ functioning of the entity, every instance of levy of fine or penalty may not be UPSI.

B. Determined material events (Para B of Schedule III) added to UPSI list

  1. Award or termination of order/contracts not in the normal course of business [sub-clause iv]
  2. Outcome of any litigation(s)/dispute(s) which may have an impact on the company [sub-clause xiv]
  3. Giving of guarantees or indemnity or becoming a surety, by whatever name called, for any third party, by the company not in the normal course of business [sub-clause xv]
  4. Granting, withdrawal, surrender, cancellation or suspension of key licences or regulatory approvals. [sub-clause xvi]
    VKCo Comments: In our view, each of the events that is determined to be material by the listed entity are in the nature of UPSI. The clauses not expressly covered above viz. product launch, capacity addition, strategic tie-up, loan agreements not in the normal course of business etc can be in the nature of UPSI.

Actionable arising on UPSI identification under PIT Regulations

  • Authorised KMPs to consider the illustrative guidance and the industry standards note for determination of expected impact of value (in case of Sch III Para B items) and determine if the information in hand is a UPSI.
    • The rationale should be recorded for future reference, in case of any query from stock exchange or SEBI in this regard.
  • Closure of trading window for DPs in possession of UPSI;
    • Trading window shall not be closed for event / info emanating outside the listed entity;
    • The facility of PAN freeze is presently available only in case of financial results. In other cases, the DPs will be required to be informed about the trading window closure and opening.
  • Recording of sharing of such UPSI, internally or externally, for legitimate purpose in the Structured Digital Database;
    • Recording of UPSI which is emanating outside the listed entity has to be made in SDD within 2 calendar days from the receipt of such information.
  • Preserving the confidentiality of UPSI and ensuring making it generally available in accordance with the Code of Fair Disclosure.

Conclusion

While the present amendment indicating specific material events as illustrative guidance is better than the earlier proposal, law cannot prescribe an exhaustive list of UPSI events as it will differ from entity to entity. Given the diverse items of information that may be material, it will be impossible to have a closed list of all; therefore, the list of potential UPSI items (UPSI Library) needs to be formulated by every listed entity which is (a) Dynamic – it will have to be populated regularly, based on a feedback system and (b) Granular – the more granular the items are, easier it will be to assign the first point of responsibility and to minimise the nodes or the stop-overs that information travels, from its first source of recognition to the ultimate centre.

SEBI’s Plethora of Proposals

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– Sourish Kundu, Executive | corplaw@vinodkothari.com

RECENT SEBI CPs.pptx (1)Download

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Subsidiaries to refer LODR definition of “related party” – going too far with relationships?

SEBI approves cartload of amendments 

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– Team Corplaw | corplaw@vinodkothari.com

SEBI in its Board meeting dated December 18, 2024, has approved amendments pertaining to BRSR, HVDLEs, DTs, SMEs, Intermediaries, etc.  This article gives a brief overview of the approved amendments.

Ease of Doing Business for BRSR

  • Scope of BRSR Core for Value Chain Partners shrunk
    • Value chain partners now consist of individuals comprising 2% or more of the listed entity’s purchases and sales (by value) instead of 75% of listed entity’s purchases/sales (by value).
    • Further, the listed entity may limit disclosure of value chain to cover 75% of its purchases and sales (by value), respectively.
  • Deferred applicability of ESG disclosures for the value chain partners & its limited assurance by one financial year
    • Applicability of ESG disclosures for the value chain deferred from FY 24-25 to FY 25-26.
    • Applicability of limited assurance deferred from FY 25-26 to FY 26-27.
  • Voluntary disclosure of ESG disclosures for the value chain partners & its limited assurance instead of comply-or-explain
    • Top 250 listed entities by market cap can now comply with the ESG disclosures for the value chain partners & its limited assurance on a voluntary basis in place of  comply-or-explain.
  • Term ‘Assurance’ replaced with ‘assessment or assurance’ to prevent unwarranted association with a particular profession (specifically audit profession).
    • Assessment defined as third-party assessment undertaken as per standards to be developed by the Industry Standards Forum (ISF) in consultation with SEBI. 
  • Reporting of previous year numbers voluntary in case of first year of reporting of ESG disclosures for value chain.
  • Addition of disclosure pertaining to green credits as a leadership indicator under Principle 6 – Businesses should respect and make efforts to protect and restore the environment of BRSR

Immediate actionables for Listed entities:

  • Entity to re-assess its value chain partners as per the revised definition.
  • Entity forming part of top 250 listed entities by market cap to undertake third party assessment of its BRSR Core disclosure for FY 24-25 as per the standards to be developed by ISF.
  • To disclose about the green credits procured/generated by the entity during FY 24-25.

Debenture Trustee (‘DT’) Regulations:

  • Introduction of provisions relating to ‘Rights of DTs exercisable to aid in the performance of their duties, obligations, roles and responsibilities’, which broadly indicates (as proposed in the CP):
    • Calling information/ documents from issuer w.r.t. the issuance;
    • Calling documents from various intermediaries;
    • Calling of and utilization of Recovery Expense Fund, with consent of holders.
  • Corresponding obligations on the issuers to submit necessary information/documents to DTs.

VKCo comments: In addition to the corresponding obligations on the issuer, CP also proposed to mandate Depositories and Stock exchanges to provide requisite information to DTs, which is yet to be approved. The right to call information from issuers and market participants including corresponding obligations on them will enable DTs to perform their functions efficiently.

  • Introduction of standardized format of the Debenture Trust Deed (‘DTD’)
    • To be issued by Industry Standards Forum with SEBI consultation;
    • In case of deviation from the format of DTD, disclosure is to be made for investor review. (CP proposed to disclose deviation as insertion of a key summary sheet of deviation in GID/KID)

VKCo comments: While the introduction of model DTD is appreciated, the draft model DTD proposed in the CP was not aligned with the general market practices followed by the DTs as well as the applicable laws such as SEBI Listing Regulations, NCS Regulations, Indian Trust Act, etc.

  • Activity-based Regulation for DTs:
    • DTs are to undertake only such activities regulated by other financial sector regulators/ authorities (as SEBI specifies);
    • Hive off non-regulated activities to a separate entity – within 2 years;
    • Sharing of resources between DT and hived-off entity is allowed, subject to segregation of legal liabilities;
    • Hived-off entity can use DT’s brand/logo – only for a period of 2 years (CP suggested 1 year); Both DT and hived-off entity to abide by SEBI’s code of conduct during such period.

Applicability of CG norms on HVDLEs 

Under this segment of changes discussed by SEBI, most of the proposals are in alignment with the Consultation Paper dated 31st October, 2024, except for few changes in relation with PSUs coming together with public enterprises under Public Private Partnership.

  • Threshold for being identified as HVDLE increased from 500 Crores to 1,000 Crores to align with the criteria of Large Corporates

VKCo Comments: The proposal to enhance the extant threshold is encouraging in terms of governing the maximum value of outstanding debt while at the same time achieving the same without bearing the burden of compliance by an increased number of purely debt listed entities. Subsequently, effective implementation of such a proposal aligns it with the identification criteria of Large Corporates. 

  • Introduction of a separate chapter for entities having only debt listed, and sunset clause for applicability of CG norms

VKCO Comments: While this proposal is noteworthy, however, instead of rolling out a new chapter, there could have been certain modifications in the existing regulations by way of a proviso to align with the needs of an HVDLE. Further, one also needs to wait to see the fine print -of the provisions once the same is issued.

VKCo Comments: The proposal is welcome since it clearly sets the HVDLEs free from the barrier of once an HVDLE so always an HVDLE. This proposal sets a clear nexus between the compliance and the size of the debt outstanding, for the protection of which in the very first place, the compliance triggered.

  • Optional constitution of RMC, NRC, and SRC and delegation of their functions to the AC and Board respectively.

VKCo Comments: Given the close construct of debt listed entities, it is often observed that the constitution of such committees becomes more of a hardship than in smoothing compliance and discussing specific matters. Accordingly, it looks appropriate to redirect the functions of NRC and RMC to the Audit Committee and that of the SRC to the Board.

  • HVDLEs to be included in the counting of maximum no. of directorships, memberships and chairmanships of committees. However, this shall exclude directorships arising out of ex-officio position by virtue of statute or applicable contractual framework in case of PSUs and entities set up under the Public Private Partnership (PPP) mode respectively, in the count. The said exclusion was not in the CP.

VKCo Comments: The rationale completely aligns with the proposal made and seems to be justified. Further, as far as the exclusion is concerned, this seems more from excluding those members who are part of the board not on the basis of their appointment but their current tenure being served in a particular position in the company.

  • RPT Approval by way of NOC from DT (who obtains it from holders), before going for shareholders’ approval [w.e.f. 1st April, 2025]

VKCo Comments – While the CP suggested two ways of seeking approval for material RPTs of an HVDLE. The Board has only considered the alternative mode of first seeking NOC of DT and thereafter approaching the shareholders. Further, as discussed in our related write up on the CP, there does not seem to be any incentive to first approach the DT and thereafter the DT to approach the NCD holders. Instead the approval of the NCD holders can be taken up directly by the HVDLE. 

  • Submission of BRSR on a voluntary basis

VKCo Comments: The inclusion of a voluntary provision in the legislation with respect to a comprehensive report like BRSR is not likely to be submitted given the huge details under the BRSR. However, an opportunity to submit BRSR can be a game changer for an HVDLE from the perspective of being able to raise funds based on its reporting standards in this regard. 

One of the changes discussed by the Board is relaxation to HVDLEs set up under the PPP mode from composition requirements of directors. While this was not a part of the CP, however, even if we have to understand that change proposed, this looks like relaxing the composition requirement of the Board of Directors. 

CHANGES NOT APPROVED: 

  • Compulsory filing of CG compliance report in XBRL format

VKCo Comments: This proposal was with an objective to align and standardize the filing of quarterly CG compliance report for bringing parity as in the case of equity listed entities 

  • Exemption to entities not being a Company

VKCo Comments: While SEBI refers to the introduction of similar exclusion for equity listed entities, however, it has also mentioned the subsequent amendment wherein the same was omitted. The proposal not being notified is in alignment with the position of equity listed entities, however, the same would have been a welcome change since it would have helped such entities to give preference to their principal statutes and not an ancillary one like LODR. 

Our detailed write up on the CP can be accessed here.

Amendments in the definition of UPSI – making the law more prescriptive

  • Inclusion of 17 items in definition of UPSI: The illustrative list of USPI in reg. 2 (1) (n) of the PIT Regulations has been expanded to include 17 items from the list of material events laid out in Part A of Schedule III of the Listing Regulations [Originally proposed in the CP – 13 items] 
  • Threshold limits under reg. 30 made applicable: materiality thresholds specified in reg. 30 (4) (i) (c) of the Listing Regulations have been made applicable for identification of events as UPSI 
    • As per the current practice, any event that is likely to materially affect the price of the securities can be identified as UPSI 
  • Extended timelines for making entries in SDD: for an event of UPSI that emanates outside the company, entries can be made in the SDD within 2 days of occurrence. Further closure of the trading window will not be mandatory in such cases. 
    • This has been introduced as a part of EODB
    • As per the current practice entries in the SDD have to be made promptly

Refer to our discussion on CP in: Laundry List: SEBI’s proposal to elongate list of deemed UPSIs

Compliance-o-meter: From abstraction to structured granular assessment

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– Vinod Kothari and Payal Agarwal | corplaw@vinodkothari.com 

In risk assessment, effectiveness testing, compliance management, or other areas where qualitative assessment is required, one may be making abstract statements like: we have very effective controls; we have strong risk management practices; we have the best of the practices in compliance management, etc. However, very often, these may be pure abstractions. How do we use a structured approach which may allow us to give a more granular, methodical approach to benchmark ourselves?

Unlike quantitative parameters, there are no set methods or approaches to qualitative assessment. However, every qualitative assessment is also backed by identifying the elements that need to be studied, the ingredients or the check points in each of these elements, the weights of the respective elements in the overall assessment framework, assignment of scores based on the weights and observations for each of the checkpoints, eventually coming to an aggregate score. That is, a purely qualitative assessment may be converted into a score sheet.

One may create one’s own methodology; here is a suggested one. Before proceeding with the methodology, one may submit that the same methodology that may be used for effectiveness assessment may also be used for risk assessment. A good score in effectiveness is a positive indicator; a high score in risk assessment is a threat.

The suggested assessment methodology involves:

  1. Identification of elements: Every assessment can be decomposed into the elements underlie it. Take a very easy example of, say, quality of board minutes prepared in a large company. The quality is purely an abstraction, which can be granularly split into, at the least, the timeliness of minuting, the comprehensiveness, ease of understanding, compliance with the law and standards, etc. Similarly, if one refers to the effectiveness of controls on insider trading, one may decompose the overall control into several elements such as identification of UPSI, sharing of UPSI, management of Designated Persons, codes and policies etc. Note that the more granular the elements are, the better is it for the final result.
  2. Weights of the elements: The next point to understand is whether each of the elements are equally weighted, or do they have differential relevance or importance in the overall matter being assessed. For example, if the subject matter of assessment is “quality of minuting”, compliance with law and standards may be perceived as having a higher weight than, say, comprehensiveness or ease of understanding. The task of assigning weights may, once again, become qualitative – therefore, it is necessary to have a methodical approach towards the weights as well. The weights may be determined based on, in descending order, whether the element may result in penal consequence or reputational loss, whether it may undermine controls or the correctness or reliability of the subject matter, whether it is good to have but not must to have, etc.
  3. Ingredients or check points for each element: The check-points for each element need to be an even more granular list of activities, processes, policies, etc that make up the respective element. For instance, in the context of PIT controls, the check points under DP management may include the manner of categorizing DPs, periodicity of updating the list of DPs, maintenance of DP database etc. 
  4. Scores: Once the base work w.r.t. creation of the assessment list is done, actual scores are required to be assigned based on the level of performance of the company on the given check-point. Depending on whether the assessment is a risk assessment, compliance assessment or process review, a scoring parameter may be created, for instance: 
Scoring Parameter
Not compliant/ no practice exists for the same0
Meeting minimum compliance/ practice1
Good Practices (indicates industry practice)2
Gold Practices (indicates leadership practices)3
  1. Weighted score: The scores allotted to each check-point has to be multiplied with the weights assigned to each check point, to arrive at the weighted score of the respective checkpoint. For instance, assume there are five checkpoints in an element, the weighted score can be derived as below:
Check-points Weights ScoresWeighted Score 
A13 (maximum)13
A220 (minimum)0
A333 (maximum)9
A4 326
A51 (minimum)22
Total 1220
  1. Maximum score and actual score: The weighted score obtained against each checkpoint of an assessment element sums up to form the actual score of such element. The same is to be compared against the maximum score for such an element, and expressed as a percentage. For instance, in the aforesaid table, the actual score of the element, let’s say ‘A’, that is made up of ‘A1’ to ‘A5’ sums up to 20. The maximum score that can be obtained for the said element ‘A’ is maximum score for a check-point (3) multiplied by the maximum weight (3), i.e., 9 multiplied by the total number of checkpoints (5), i.e. 45. Based on the aforesaid, the percentage score of the element can be calculated as = (Actual score/ Maximum score)*100. 
  1. Radar chart: Once the scores are assigned, and the percentage score for each element has been calculated, the same can be expressed in the form of a radar chart. Below is an example of a compliance radar: 

In the picture above, (0-25) is the area of non-compliance, depicting lapses in meeting the minimum legal requirements. (26-50) is the area of meeting the minimum compliance with law, (51-75) indicates that the company is moving towards the general industry practices, and a score beyond 75 shows that the company is adopting leadership practices in the respective compliance area. 

A risk assessment chart may be similarly formed, wherein, a higher score indicates a higher level of risk. Also see an article on Compliance Risk Assessment. 

Other Related Resources –
  1. Compliance Risk Assessment – Guidance for implementation by NBFCs
  2. Risk Management Function of NBFCs – A Need to Integrate Operational Risk Management & Resilience

DPs to furnish periodic & continual disclosures for units of its own mutual fund to AMC

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Shaivi Bhamaria, Associate & Sakshi Patil, Executive | corplaw@vinodkothari.com

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Refer to our related resources below:

  1. Mutual Fund units now under the net of insider trading regulations (Updated as on October 23, 2024)
  2. FAQs on Insider Trading Framework for Mutual Funds
  3. Prohibition of Insider Trading – Resource Centre

30 hours Online Course on Securities Laws for Newly Listed and To-be Listed Companies

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Register your interest here – https://forms.gle/HGJxAb7e8ds2dMrF9

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  1. LODR Resource Centre
  2. Prohibition of Insider Trading – Resource Centre
  3. Saaraansh (YT series)
  4. Making Corporate Governance IPO-ready
  5. The basics of bringing an IPO
  6. FAQs on IPO Financing
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Insider Trading Framework for Mutual Funds and other Pooled Investment Vehicles

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Fill the google form to register here.

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Our resources on Insider Trading-
1. Mutual Fund units now under the net of insider trading regulations
2. FAQs on Insider Trading Framework for Mutual Funds
3. FAQs on Structured Digital Database
4. Prohibition of Insider Trading – Resource Centre
5. SEBI proposes to widen the definition of Connected Persons

SEBI widens the definition of ‘Connected Persons’ for facilitating enhanced enforcement against insider trading

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Last updated on December 10, 2024

Team Corplaw | corplaw@vinodkothari.com

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Also, refer our resource on PIT here

Will Insiders Tread Trading Plan 2.0?

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Insider Trading Regulations amended in line with Consultation Paper

Heta Mehta | Executive | corplaw@vinodkothari.com

The concept of Trading Plan (‘TP’) that existed since May 2015 continued to remain unpopular due to the stringent conditions laid down in the Insider Trading Regulations. The framework was set to be reviewed based on empirical evidence and feedback post introduction and determine if SEBI needs to dilute or increase the regulatory requirement. In order to make it more realistic and captivating, SEBI’s Working Group suggested reforms vide Consultation Paper dated 24th November, 2023[1] that was approved by SEBI in its board meeting held on  March 15, 2024. SEBI (Prohibition of Insider Trading) (Second Amendment) Regulations, 2024 notified on June 25, 2024 will be effective from September 24, 2024. As a concept, it is not unique to India, globally, both the US and UK have similar TP concepts with some or the other variations when compared to our legislation. This article discusses the amendments, including the rationale provided in the CP, relevant points discussed in the SEBI Board meeting and our analysis on the same.

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