Regulatory Update: Recent Amendments To The Insider Trading Regime

Since the introduction of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations), the Securities and Exchange Board of India (SEBI) has continuously tweaked the regulations through various amendments. On 25 June 2024, SEBI notified the SEBI (Prohibition of Insider Trading) (Second Amendment) Regulations, 2024 (PIT Amendment Regulations), to ease the trading plan framework and provide flexibility in the execution of trades by insiders under the PIT Regulations. The PIT Amendment Regulations will come into force 90 days from the date of their publication in the official gazette i.e., on 23 September 2024, providing a transition period for market participants to align their processes with the revised regulatory framework. The key changes introduced are as follows:

1. Cool-off period for implementation of the trading plan and minimum coverage period: Through the PIT Amendment Regulations, the time gap for the commencement of trading from the date of public disclosure has been reduced from 6 months to 120 calendar days. Further, the requirement of a trading plan covering a minimum period of 12 months has been done away with. The insider can now specify the time for executing the trades, provided an outer time limit is given.

2. Detailed trade parameters: In order to enhance transparency and compliance, the PIT Amendment Regulations specifies that the trading plans must clearly set out the following parameters for each trade to be executed:
   • Either the value of trade or the number of securities to be traded;
   • Nature of the trade, indicating whether it is a buy or sell transaction;
   • Specific date or time period for the trade, which must not exceed five consecutive trading days; and
   • Price limit.

3. Introduction of a price limit under the trading plan: To enhance the transparency and precision of trading activities, the PIT Amendment Regulations introduces an option to disclose the upper price limit for a buy trade and a lower price limit for a sell trade. This limit must be in the range of 20% of the closing price on the day before submission of the trading plan. However, in cases where the price of the security falls outside the price limit, the trade cannot be executed.

4. Exceptions for non-implementation of the trading plan: The PIT Amendment Regulations introduces certain exceptions allowing insiders to deviate from their trading plans in case of permanent incapacity, bankruptcy, or operation of law. In other instances where the insider cannot execute the trading plan due to the price of the security is outside the price limit under the trading plan or the security has inadequate liquidity, the following procedure must be followed:
   • The insider must notify the compliance officer within 2 trading days of the end of tenure of the trading plan along with reasons and supporting documents.
   • The compliance officer will present this information along with the recommendation to the audit committee at its next meeting. In such a meeting, the audit committee will decide whether the non-implementation of the trading plan was bona fide or not.
   • The audit committee's decision will be promptly communicated by the compliance officer to the relevant stock exchanges on the same day.
   • If the audit committee does not accept the insider's submissions, the compliance office will take actions as per the organization's code of conduct.

Further, the PIT Amendment Regulations mandates the compliance officer to approve or reject the trading plan within two trading days of receiving it and notify the approved trading plans to the stock exchanges on the day of approval.

5. Other amendments:
   • Further adjustments to the trading plan: In case of a corporate actions related to the bonus issue or stock split after the approval of the trading plan, the insiders are allowed to make adjustments to their trading plan with the approval of the compliance officer. These adjustments must be promptly reported to the relevant stock exchanges.
   • Permissibility of contra trades: Contra trades are no longer allowed under the approved trading plans. Furthermore, a mandatory 6-month restriction will apply on contra trades as per the organization's code of conduct, without any exceptions.

Please click here to read the PIT Amendment Regulations.

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