The Securities and Exchange Board of India (Sebi) has released a consultation paper aiming to ease the process of trading in shares by company officials, who are typically in possession of Unpublished Price Sensitive Information or UPSI.
This assumes significance as the regulator has received feedback from various quarters stating that the current framework for so-called ‘Trading Plans’ or TP are onerous and hence not very popular, especially considering the fact that senior management or key managerial personnel (KMP) are mostly in possession of UPSI.
More importantly, trading on the basis of UPSI is a grave violation for any entity or class of shareholders and hence KMPs have to be all the more careful on how they plan their trades.
“… insiders may need to trade for purposes such as creeping acquisitions, compliance with minimum public shareholding norms, etc. Also, grant of stock options is often a significant component of KMP compensation and KMPs may wish to dispose of the shares acquired through exercising stock options, but by virtue of perpetually holding UPSI, may find it difficult to do so,’ stated the Sebi discussion paper.
Sebi had constituted a Working Group to look into this matter and the group submitted its report to the capital market regulator in September.
The key recommendations of the group are related to the framework regarding cool-off period, and minimum coverage period, along with the disclosure timelines and format for reporting the details of the trading plans.
“The minimum cool-off period between disclosure of TP and implementation of TP may be reduced to four months from six months… The minimum coverage period requirement may be reduced to two months from twelve months,” stated the Sebi paper.
The group has also recommended giving the insider flexibility to provide price limits while structuring the trading plan.
“Such price limit shall be within +/-20% of the closing price on date of submission of TP. If price of the security, during execution, is outside the price limit set by the insider, the trade shall not be executed. If no price limit is opted for, the trade has to be undertaken irrespective of the prevailing price,” states the consultation paper.
In terms of disclosures to the stock exchanges, the Sebi paper has suggested that while a full disclosure – including all the personal details of the insider – should be made to the stock exchanges, a separate disclosure without the personal details must be made for the public.
“… market feedback indicates that full disclosure of personal details in TP may raise privacy and safety concerns for senior management and insiders,” stated the Sebi paper.
