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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The idea of unpublished price sensitive information (‘UPSI’) is something which companies have to guard as confidential until disclosed to investors, as it may materially impact the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.

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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SEBI Consultation Paper (CP) to ease trading plans by company insiders

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Sanya Agrawal | corplaw@vinodkothari.com

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Our detailed article on the topic can be read here

Link to our PIT resource centre: https://vinodkothari.com/prohibition-of-insider-trading-resource-centre/

SEBI proposals to ease trading plans by company insiders

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-Consultation paper proposes to rationalise the existing framework under insider trading

Anushka Vohra | Senior Manager

corplaw@vinodkothari.com

Background

The concept of trading plan was introduced for the first time in the SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’). The rationale for introducing the same, as indicated in the Report of the High Level Committee constituted for the purpose of reviewing the erstwhile 1992 Regulations, chaired by Mr. N.K. Sodhi, was  that there may be certain persons in a company who may perpetually be in possession of UPSI, which would render them incapable of trading in securities throughout the year. The concept of trading plan would enable compliant trading by insiders without compromising the prohibitions imposed in the PIT Regulations. 

Trading plan means a plan framed by an insider (and not just a designated person) for trades to be executed at a future date. Trading plan is particularly suitable for those persons within the organization, who may by way of their position, seniority or any other reason, be in possession of UPSI at all times. Since, the PIT Regulations prohibit trading when in possession of UPSI, trading plans are an exemption to such prohibition.  In order to ensure that the insiders while formulating the trading plan do not have possession to UPSI, cooling-off period of 6 months has been prescribed in the PIT Regulations. As per Reg. 5(1) of the PIT Regulations, the trading plan has to be presented before the compliance officer of the company for approval. As per sub-regulation (3), the compliance officer has to review the trading plan and assess for any violation of the PIT Regulations. If at the time of formulation of trading plan, there was no UPSI or later on a new UPSI was generated, then the trading can be carried out as per the trading plan, even if the new UPSI has not been made generally available.

When the trades are executed as per trading plan, certain provisions of the PIT Regulations are exempted viz. trading window restrictions, pre-clearance of trades and contra trade restrictions.

SEBI has issued a Consultation Paper on November 24, 2023 for inviting public comments on the recommendations of the Working Group (‘Report’) to review provisions related to trading plans.

This article discusses the proposed amendments to the framework of the trading plan as mentioned in the Consultation Paper.

Challenges in the present framework

The Report discusses that during the last 5 years only 30 trading plans have been submitted annually by the insiders, which indicates that the trading plans are not very popular. 

The year wise data on trading plans as mentioned in the Report is given below:

The data w.r.t. number of listed companies and DPs during FY 2022-23 is also given below:

The above clearly shows that during FY 2022-23, the number of designated persons among the listed companies was around 2,56,878 and there were only infinitesimal trading plan received by the exchange(s). 

Further, the five features of the trading plan as highlighted in the Report are as under:

(i) can be executed only after 6 (six) months from its public disclosure; 

(ii) are required to cover a period of at least 12 (twelve) months; 

(iii) must be disclosed to the stock exchanges prior to its implementation (i.e., actual trading); 

(iv) are irrevocable; and 

(v) cannot be deviated from, once publicly disclosed.

As evident from above, while the concept has been into existence since 2015, trading plans have not been very popular owing to certain restrictive conditions viz. mandatory execution of the same even if the market prices are unfavorable for an insider, inability to trade for a reasonable period around the declaration of financial results and mandatory cooling off period of 6 months etc.

Proposed amendments

  1. Cooling-off period

Cooling-off period means gap between the formulation and public disclosure of the plan  and actual execution of the plan. Reg. 5(2) of the PIT Regulations presently provides a cooling-off period for 6 months as the  period of 6 months was considered reasonable for the UPSI that may be in the possession of the insider while formulating the trading plan to become generally available or any new UPSI to come into existence.

This period is proposed to be reduced to 4 months. The Report states that as per the current requirement, the insiders have to plan their trade 6 months ahead which may not be favorable, considering the volatility in the markets. It was proposed to either reduce the period or to do away with it. 

The Report classifies UPSI into two types; short-term UPSI and long-term UPSI to ascertain the time within which the UPSI is expected to become generally available.

The Report further highlights that in case of short-term UPSI, a period of 4 months would be sufficiently long for it to become generally available. 

In case of long-term UPSI, the Report refers back to proviso to Reg. 5(4) according to which the insider cannot execute the trading plan if the UPSI does not become generally available. 

The Report also gives reference to the cooling-off period for trading plans in the US, where SEC introduced the cooling-off period only in December 2022.

  1. Minimum coverage period

Reg.5(2)(iii) states that a trading plan shall entail trading for not less than 12 months. A period of 12 months was specified to avoid frequent announcements of trading plans. This again provides a very long period for insider to execute their trading. This period is proposed to be reduced to 2 months.

  1. Black-out period

As per Reg 5(2)(ii), trading plan cannot entail trades for the period between the twentieth trading day prior to the last day of any financial period for which results are required to be announced by the issuer of the securities and the second trading day after the disclosure of such financial results. This period is known as the black-out period. 

The Report states that this period forms a significant part of the year, considering 4 quarters and hence it is proposed to omit the same.

The Report also discusses the potential concerns that may arise on removing the black-out period. The Working Group noted that the same is addressed by the cooling-off period and non alteration of plan once approved and disclosed.

  1. Price limit

As per Reg. 5(2)(v) of the PIT Regulations, the insider can set out either the value of trades to be effected and the number of securities to be traded along with the nature of the trade, intervals at, or dates on which such trades shall be effected.

The Working Group noted that there was no price limit that the insider could mention. The Report recommends a price limit of 20%, up or down of the closing price on the date of submission of the trading plan. 

  1. Irrevocability

As per Reg. 5(4), the trading plan once approved shall be irrevocable and the insider will have to mandatorily implement the plan without any deviation from it. This puts the insider in a disadvantageous position as he has to execute the trades (buy / sell) even when the price is not favorable.

As per the proposed amendment, where the price of the security is outside the price limit set by the insider, the trade shall not be executed. The plan will be irrevocable only where no price limit is opted for.

  1. Exemption from contra-trade restrictions

As per Reg. 5(3) of the PIT Regulations, restrictions on contra trade are not applicable on trades carried out in accordance with an approved trading plan. 

The Working Group deliberated that it is difficult to envisage a reasonable and genuine need for any insider to plan two opposite trades with a gap of less than 6 months. The Report states that the insider may misuse the exemption for undertaking a contra position. Therefore, the exemption is proposed to be omitted. 

  1. Disclosure of trading plan: timeline & content

As per Reg. 5(5), upon approval of the trading plan, the compliance officer has to notify the plan to the stock exchange(s). However, presently there is no specific timeline indicated. The Working Group recommends disclosure within 2 trading days of the approval of the plan. Further, it recommends disclosure of the price limit as well.

While the format of the trading plan will be rolled out basis discussion with the market participants, the Consultation Paper, basis the recommendations of the Working Group on protecting the privacy of the insiders by masking the personal details, discussed three alternatives of disclosure, as under:

It was discussed that disclosing personal details of the insiders publicly may raise privacy and safety concerns for senior management and insiders and not disclosing personal details to the stock exchange(s) would lead to misuse / abuse of trading plans by other insiders. That is, a trading plan submitted by one person may instead be used by someone else.

Having discussed the above, the Consultation Paper suggests alternative 3 i.e. making two separate disclosures of the trading plan; (i) full (confidential) disclosure to the stock exchange and (ii) disclosure without personal details to the public through stock exchange. Further, these separate disclosures may have a unique identifier for reconciliation purposes.

Concluding remarks

The proposed amendments indicate a welcome change as it attempts to plug the gaps prevalent in the erstwhile framework and offers flexibility to the insiders. At the same time, the Compliance officer will have to remain mindful of any scope for potential abuse by the insiders, while approving the same.One will have to await the actual amendment, basis the receipt of public comments, to ascertain if trading plans are all set to become popular and more frequent.

Our resources on the topic:

  1. SEBI Consultation Paper (CP) to ease trading plans by company insiders

Link to our PIT resource centre: https://vinodkothari.com/prohibition-of-insider-trading-resource-centre/

Contra trade restrictions – traversing out of PAN to common control

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Anushka Vohra | Senior Manager

corplaw@vinodkothari.com

Introduction

The SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’) impose certain restrictions and obligations on the DPs, one of which is contra trade restriction.

The DPs and their immediate relatives are restricted from entering into contra trade which refers to opposite trades executed viz. buy / sale within a shorter period of time usually within a period of 6 months with an intent to book short term profits. Where contra – trade is executed in violation of the restriction, the profit earned is to be disgorged for remittance to the IPEF.

In case of an individual DP (promoters / directors / etc. as recognized by the listed company), the immediate relatives also have certain obligations under the Regulations as their trades may be said to be influenced by the DPs. Similarly, in case of non-individual DPs (promoters), there may be other promoters and persons belonging to the promoter group who may act in concert with a particular non-individual promoter.

Having said that, it is important to understand the intent of contra trade, whether the same would apply individually on DPs based on trades executed against their PAN or the same would apply jointly on DPs and their immediate relatives or the entire promoter group inter-se. The same has been a matter of discussion in various Informal Guidance (‘IG’) of SEBI. We discuss the same briefly along with other illustrations.

Informal Guidance

Generally, the concept of Persons Acting in Concert (‘PACs’) is used in the Takeover Code and under the PIT Regulations, the perspective so far has been PAN based. In the recent IG in the matter of Deccan Gold Mines Ltd[1], SEBI in its interpretative letter has given the view that contra trade restrictions would apply on the promoter group jointly, given the case in hand. The facts of the case have been represented diagrammatically below.

We see that the listed company is being held by two corporate promoters, which in turn are held by common shareholders. Here, RMML intended to sell its shareholding in open-market within 6  months of the allotment made to AIRL.

Since there is common control in both the promoter entities, it was stated that contra-trade restriction would apply jointly on both.

Intent of contra-trade

The intent of contra trade, as also mentioned above is to ensure that the persons who are privy to UPSI do not make short term profits in the securities of the listed company. For instance, if a DP has bought a security of the listed company in anticipation of a rise in prices that might be caused by the UPSI, such DP cannot sell such security within 6 months of the purchase. While trades can be executed by different DPs having different PAN, however where a single person is the “driving force” (as cited by the SAT in Shubhkam Ventures (I) Private Limited v. SEBI[2], it cannot be said that the persons acted in their individual capacity.

There have been instances in the past where SEBI has given the view that contra trade restrictions apply individually on DPs. The view seems to be supported by the interpretation of clause 10 of Schedule B of the Regulations, which states that:

The code of conduct shall specify the period, which in any event shall not be less than six months, within which a designated person who is permitted to trade shall not execute a contra trade. XXX

Previously, in 2020, in the matter of Raghav Commercial Ltd[3], SEBI in its interpretative letter took the view that the contra trade restrictions apply to trades made by promoters individually and not the entire promoter group.

Taking the case of individual DPs, in the matter of Star Cement Limited[4], while answering the question on applicability of contra trade restrictions – whether individually or to the entire promoter group, SEBI cited the above clause 10 stating that the same applies individually.

Reference of the above case was taken in 2019 in the matter of Arvind Limited[5], where contra trade restrictions were said to apply individually on DP through PAN, disregarding who took the trading decision. Our detailed article on the same can be read here.

The current case makes it quite clear that the facts of the case have to be considered to analyze whether there is a single person taking trading decision.

Let us take several other examples to understand the intent of contra trade.

1.

Whether Leg 2 will be contra to Leg1? Here we see that significant stake i.e. 50% is being held by Partner A (promoter of X Ltd) in the LLP. The trades of LLP can be said to be influenced by the decision of Partner A. This can be a case of common control and therefore Leg 2 becomes contra to Leg 1.

2.

In this case, we will have to see who is behind A Ltd and B Ltd. If both A Ltd and B Ltd are held by the same set of shareholders, Leg 2 would become contra to Leg 1.

Further, there are certain exemptions w.r.t. contra-trade restrictions that have been prescribed in the PIT Regulations and also in SEBI FAQs.

As per PIT Regulations, contra trade shall not apply for trades pursuant to exercise of stock options. SEBI Faqs further elaborate on the same stating that, in respect of ESOPs, subscribing, exercising and subsequent sale of shares, so acquired by exercising ESOPs (hereinafter “ESOP shares”), shall not attract contra trade restrictions.

Further trades pursuant to any non- market transaction is exempted (SEBI Faqs).

The rationale behind exemption is that for stock options and non-market transactions, the exercise price / purchase price is predetermined. The selling transaction pursuant to exercise of stock options or pursuant to acquisition of shares in non-open market is not influenced by purchases made basis some UPSI. The exercise price / acquisition price is already decided by the company.

Let us understand another example.

3.

In the above case, it is evident that A is the decision maker for A Pvt Ltd. Here, Leg 2 is not contra to Leg 1.Leg 4 is contra to Leg 3 as there is no exemption provided.

Often, it is also interpreted that contra-trade is applicable share wise. To take an example, suppose; first –  stock options are acquired by a DP, second – open market purchase is done, third – stock options are sold (all three within a period of 6 months). Here, it is interpreted that third would not be contra to first and second. This is a wrong interpretation, as the moment the DP makes any open market purchase or already has the company’s shares in portfolio, the immunity w.r.t. selling shares acquired pursuant to exercise of stock options is lost. One cannot differentiate between the shares as what is important to establish for contra-trade is the intention to make short term profits. Such intention, also, is evident when trading decisions are made by a single person, irrespective of the different individuals executing trades.

Global scenario

Contra-trade is understood by different names in other jurisdictions. It is referred to as short swing in the US and reversal trade in some jurisdictions.

  1. United States – Securities Exchange Commission Act, 1934[6]

Section 16(b) deals with prohibition on short-swing trades by beneficial owner, director, or officer of the companies. The section reads as under:

“For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner[7], director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer (other than an exempted security) or a security-based swap agreement involving any such equity security within any period of less than six months, unless such security or security-based swap agreement was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner, director, or officer in entering into such transaction of holding the security or security based swap agreement purchased or of not repurchasing the security or security-based swap agreement sold for a period exceeding six months.XXX”

  1. China – Securities Law of the People’s Republic of China[8]

Article 41 and 42 deals with contra trade restrictions. It reads as under:

Article 41 A shareholder that holds five percent of the shares issued by a company limited by shares shall, within three days from the date on which the number of shares held by him reaches this percentage, report the same to the company, which shall, within three days from the date on which it receives the report, report the same to the securities regulatory authority under the State Council. If the company is a listed company, it shall report the matter to the stock exchange at the same time.

Article 42 If the shareholder described in the preceding article sells, within six months of purchase, the shares he holds of the said company or repurchases the shares within six months after selling the same, the earnings so obtained by the shareholder shall belong to the company and be recovered by the board of directors of the company. However, a securities company that has a shareholding of not less than five percent due to purchase of the remaining shares in the capacity of a company that underwrites as the sole agent shall not be subject to the restriction of six months when selling the said shares.

If the company’s board of directors fails to comply with the provisions of the preceding paragraph, the other shareholders shall have the right to require the board of directors to comply.

If the company’s board of directors fails to comply with the provisions of the first paragraph and thereby causes losses to the company, the directors responsible therefore shall bear joint and several liabilities for the losses.

Concluding remarks

We had earlier in our article (supra) given the view that contra-trade should be seen jointly and not individually, considering the intent. To establish violation of PIT Regulations, one has to go beyond tracking trades based on PAN. It is important to know the decision maker behind the trades, in order to establish a clear nexus. It would be important to see whether such a view was taken by SEBI because of the case in hand or is it reflective of a new trend i.e. position of common control.

Link to our PIT Resource centre: Click here

[1] https://www.sebi.gov.in/enforcement/informal-guidance/oct-2023/in-the-matter-of-rama-mines-mauritius-ltd-under-sebi-prohibition-of-insider-trading-regulations-2015_78308.html

[2] https://www.sebi.gov.in/satorders/subhkamventures.pdf

[3] https://www.sebi.gov.in/sebi_data/commondocs/sep-2020/SEBI%20let%20Raghav%20IG_p.pdf

[4] https://www.sebi.gov.in/sebi_data/commondocs/jul-2018/StarCementGuidanceletter_p.pdf

[5] https://www.sebi.gov.in/sebi_data/commondocs/nov-2019/Inf%20Gui%20letter%20by%20SEBI%20Arvind_p.pdf

[6] https://www.govinfo.gov/content/pkg/COMPS-1885/pdf/COMPS-1885.pdf

[7] Every person who is directly or indirectly the beneficial owner of more than 10% of any class of any equity security (other than exempted security) [Ref. 16(a)(1)]

[8] http://www.npc.gov.cn/zgrdw/englishnpc/Law/2007-12/11/content_1383569.htm#:~:text=Article%201%20This%20Law%20is,of%20the%20socialist%20market%20economy.

Recent regulatory developments for listed entities – critical changes under LODR and PIT Regulations

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Workshop on Recent regulatory developments for listed entities: critical changes under LODR and PIT Regulations

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The triumphs and tribulations of being a promoter in listed entities

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– Team Corplaw | corplaw@vinodkothari.com

Introduction

The classic rule of Solomon, that the shareholders are different and the company that they promote is different, and that the liabilities of the company cannot be passed over to the shareholders, seems to be getting constantly indented, particularly as courts and regulators realize that companies are inanimate; it is the controlling heads who actually run companies. Therefore, if there is a vice in the schematics of a company, it must rope in the promoters too. Securities regulator, and our own SEBI too, has been fastening several obligations of listed entities on the promoters, including the recent ‘Consultation paper on strengthening corporate governance at listed entities by empowering shareholders’ proposal to block the personal shareholdings of the promoters for continued lapses by the listed entity.

There are several other implications of being a promoter or promoter group entity, transactions by such entities with the listed entity are mandatorily treated as related party transactions, public disclosures on sale of shares. There are several sections of the Companies Act, 2013 (“Act”) as well, which impose liabilities, including criminal liabilities, on promoters. Some of these provisions are section 7 (imposing criminal liability for incorporation related offenses), of the Act, if it is found that the company has been incorporated by furnishing any false information or representation or by suppression of any material information, the promoters would be held liable for action under section 447. Further, section 34 elaborates that if any statement in the prospectus is untrue or misleading, the promoter will be held criminally liable under Section 447. On the same lines, section 35 (imposing civil liability for public issue related mis-statements), section 42 (imposing penalty for contravening the provisions w.r.t private placement including default in filing of return of allotment), section 102 (imposing penalty for non-disclosure / wrongful disclosure in the explanatory statement), 284 (liability with respect to non-cooperation with liquidator) to list a few.

This article focuses on who is a promoter/promoter group entity (PGE), what are the implications of being either, how does one get out of the classification, having been into either, both in case of listed and unlisted companies.

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