SEBI Issues Clarifications On Insider Trading Regulations
SEBI issued FAQs on its insider trading regulations with respect to selling of ESOPs, among other matters.
The Securities and Exchange Board of India has issued frequently asked questions to clarify on certain aspects of the SEBI (Prohibition of Insider Trading) Regulations, 2015, with respect to selling of employee stock options, trade in depository receipts of companies by employees who are foreign nationals and maintenance as well as retention of information relating to designated persons by a listed company.
The FAQ aims to streamline existing ambiguities in interpretation of certain aspects of the insider trading regulations and provides clarity on aspects which the regulations are silent about.
Here are the key clarifications issued by the market regulator:
Sale Of Employee Stock Options
Under SEBI regulations, listed companies have to frame a code of conduct for employees meeting certain criteria along with their connected persons. Such persons are governed by the company’s internal code of conduct for dealing in securities and are termed as “designated persons”.
The insider trading regulations require a company’s compliance officer to monitor the trades made by a designated person and close a trading window for execution of trades if they are likely to be in possession of any price-sensitive information relating to those securities.
Designated persons, however, are allowed to execute certain transactions based on a pre-clearance from the compliance officer of the company. The FAQ issued by the market regulator has now clarified that sale of shares by employees after exercise of stock options granted to them would not require any pre-clearance.
Trading In Depository Receipts By Employees Who Are Foreign Nationals
The FAQ clarifies that any person who is identified as a “designated person” must follow the code of conduct framed for regulating the trading in any global depository receipt issued by the company. This requirement, as per the FAQ, applies to a foreign national as well.
Therefore, foreign nationals who are employed with an Indian company must also follow the code of conduct framed by the company for trading in depository receipts, irrespective of his/her nationality.
Category-Wise Information In A Structured Digital Database
The board of a listed company is mandated to maintain a structured digital database as per the requirements specified in the insider trading regulations. To prohibit insider trading, the board of a company is required to maintain names and identifier details of persons with whom information is shared under the regulations.
In course of its business, a company may be required to share sensitive information with an intermediary or a third-party entity in a fiduciary capacity. In such cases, the FAQs specify a twofold requirement:
- Board must maintain the detail of the fiduciary or intermediary in its digital database.
- The intermediary or fiduciary must in turn maintain list of persons to whom such information is further disseminated. Such information must include the person’s identifiers as well.
Retention Of Data Relating To Designated Persons
The insider trading regulations say that a company must collect all information that is specified under applicable SEBI regulations from a designated person till he/she is in employment with the company. The regulations, however, are silent about retention or maintenance of information relating to a designated person after his/her resignation.
To cover this requirement, the FAQ states that a company or intermediary or a fiduciary must make efforts to maintain updated address and contact details of a designated person for a period of one year after his/her resignation. Records so collected must be preserved by the company or intermediary for a period of five years, the FAQ said.