The Securities and Exchange Board of India (Sebi) has made it significantly easier for insiders to trade in shares of their companies by amending the Prohibition of Insider Trading (PIT) regulations. The amended norms provide flexibility in the ‘trading plan’ of a company’s key managerial personnel and will come into effect after three months.
These new norms include reduction in the cooling-off period, price limits of 20% at both upper and lower side, and cancellation of the trading plan.
Any person in a company who has access to unpublished price-sensitive information (UPSI) are considered insiders, which usually entail the senior management and officials.
According to Sebi guidelines, these insiders have to get approval for the ‘trading plan’, which specifies the share price, amount and transaction date in advance so as to not coincide with any news leaks.
Earlier, the insider had to inform the board of his buy/sell decision six months in advance. This time limit has now been reduced to four months.
The regulator has also allowed insiders to set price limits within the price range of 20% limit between the closing price on the day of submission of the trading plan and upper and lower price limits for buying or selling shares.
“To protect the insider from unexpected price movements, he may, at the time of formulation of trading plan, provide price limits within the range specified in these regulations,” Sebi said in a Gazette notification.
Further, the market regulator has provided insiders the flexibility to not execute the trades if the execution price is outside the limit set by them in the trading plan. However, on non-implementation, they will have to inform the company’s compliance officer within two trading days of the end of the trading plan with reasons and supporting documents.
“Although trading plans were introduced in 2015, they saw little adoption and failed to get popularity due to stringent regulatory restrictions and obligations. The amendments made to the trading plan is aimed at providing greater flexibility, and encouraging senior management and key management personnel to trade easily,” said Ashishchandra Rao, partner, ELP, a law firm.
