Question 1

What are the rules under the SEBI (Prohibition of Insider Trading) Regulations, 2015?

Accepted Answer

To ensure compliance with the requirements given in the SEBI (Prohibition of Insider Trading) Regulations, 2015, and to prevent insider trading, the listed company has to put in place an effective system of internal controls viz.
1. All employees who have access to UPSI are identified as designated employees.
2. All UPSI shall be identified and its confidentiality shall be maintained as per the requirements of the SEBI (Prohibition of Insider Trading) Regulations, 2015
3. A list of all employees and other persons with whom UPSI is shared shall be maintained and confidentiality agreements shall be signed or notice shall be served to all such employees and persons.
4. Adequate restrictions shall be placed on the communication or procurement of UPSI, as required by the SEBI (Prohibition of Insider Trading) Regulations, 2015.

Question 2

What is Insider Trading?

Accepted Answer

No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information. That is trading in securities while in possession of UPSI is prohibited as per the regulations. These regulations come under the purview of the SEBI (Prohibition of Insider Trading) Regulations, 2015.

Question 3

What is Trading?

Accepted Answer

Trading as defined under Regulation 2 (1) (l) means and includes subscribing, buying, selling, dealing, or agreeing to subscribe, buy, sell, deal in any securities, and "trade" shall be construed accordingly.
The term trading is widely defined to include dealing in securities and intended to curb the activities based on unpublished price sensitive information (UPSI) which are strictly not buying, selling or subscribing, such as pledging etc. Hence, trading would include creation/invocation/revocation of pledge.

Question 4

Who is an Insider?

Accepted Answer

Regulation 2(1) (g) of SEBI (PIT) Regulations, 2015 defines ‘insider’ as any person who is:
· a connected person; or
· in possession of or having access to unpublished price sensitive information.
Therefore, even if a person is not classified as a designated person, having access to UPSI would make such a person an ‘insider’.
As per Regulation 4 (1) of SEBI (PIT) Regulations, 2015, an insider is prohibited to trade while in possession of UPSI.

Question 5

What is UPSI (Unpublished Price Sensitive Information)?

Accepted Answer

UPSI means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating to the following:
1. financial results;
2. dividends;
3. change in capital structure;
4. mergers, de-mergers, acquisitions, delisting, disposals, and expansion of business and such other transactions;
5. changes in key managerial personnel
When a person who has traded in securities has been in possession of unpublished price sensitive information, his trade would be presumed to have been motivated by the knowledge and awareness of such information in his possession.

Question 6

What is the Structured Digital Database?

Accepted Answer

The requirement to maintain structured digital database under Regulation 3(5), containing the names of such persons or entities with whom UPSI is shared, is applicable to listed companies, and intermediaries and fiduciaries who handle UPSI of a listed company in the course of business operations.
The Structured Digital Database shall be maintained with adequate internal control and checks such as time stamping and audit trails to ensure non-tampering of the database.
The listed company should maintain structured digital database internally, which shall contain information including the following:
1. Details of the Unpublished Price Sensitive Information (UPSI)
2. Capture the nature of UPSI shared
3. Details of persons with whom such UPSI is shared (along with their PANs/other unique identifier) and details of persons who have shared the information.
Companies are required to maintain this structured digital database even when the information is shared only within the company.

Question 7

Why Outsourcing of SDD is prohibited?

Accepted Answer

Regulation 3(5) requires structured digital database shall not be outsourced and shall be maintained internally with adequate internal controls and checks. Whether a listed company can use software provided by third party vendors, wherein the server is of the vendor but requisite entries are made by the employees of the company only?
The third party vendors are providing the services/software on login basis, where the server is maintained by the vendor. Therefore, the vendor may have access to such records which would be contrary to the regulations with respect to maintenance of structured digital database.
Nominee directors sharing information to their bank or financial institution for legitimate purpose, will be covered as communication of UPSI.

Question 8

Who is a Fiduciary as per SEBI PIT regulations 2015?

Accepted Answer

A Fiduciary is someone who has a duty of loyalty and care towards another person or entity, and who must act in their best interest. In the context of a listed company, fiduciaries may include professional firms such as Auditors, Accountancy firms, Law firms, Analysts, Insolvency professional entities, Consultants, Banks, etc., assisting or advising listed companies. Operating from a position of trust, these fiduciaries routinely gain access to various UPSI related to listed entities and their securities while rendering services to such entities.

Question 9

Is a Statutory auditor a Fiduciary as per SEBI PIT regulations?

Accepted Answer

SEBI's (Prohibition of Insider Trading) Regulations, 2015, apply to statutory auditors of listed companies. They are considered "fiduciaries" under the regulations and have a responsibility to handle Unpublished Price Sensitive Information (UPSI) with care and maintain related records. Statutory auditors, due to their role, often have access to UPSI (information not yet public that could affect stock price).

Question 10

What is the Code of Conduct as per SEBI PIT regulations?

Accepted Answer

A fundamental requirement is the formulation of a Code of Conduct for designated persons and their immediate relatives. This code must outline procedures for pre-clearance of trades above a specified threshold and detail the period of a "trading window" closure, which prohibits trading when insiders are likely to be in possession of UPSI, such as before financial results are announced.

Question 11

What are the disclosures required as per SEBI PIT regulations?

Accepted Answer

SEBI PIT regulations mandate specific disclosure requirements. Insiders like directors, key managerial personnel, and promoters must make initial and continual disclosures of their security holdings and transactions to the company.

Question 12

Are Fiduciaries required to maintain a Structured Digital Database?

Accepted Answer

Yes Fiduciaries are expected to maintain a Structured Digital Database. This non-outsourced database must meticulously log every instance of UPSI being shared, including the names of the sender and recipient, the nature of the information, and the date and time of access. The SDD is crucial for creating an audit trail and ensuring the traceability of information, making it easier for SEBI to investigate potential violations.

Question 13

What are the responsibilities of a Compliance Officer from a  SEBI PIT regulations perspective?

Accepted Answer

All listed companies and SEBI registered intermediaries are required to appoint a Compliance Officer. This individual, a senior officer reporting to the board, is pivotal in ensuring the regulations are followed. Their duties include administering the code of conduct, monitoring trades, and maintaining a "restricted list" of securities. A key practical requirement is the maintenance of a Structured Digital Database (SDD).

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