Unpublished information and issue of insider trading

The SEBI’s insider trading regulations prohibit trading in listed securities when in possession of Unpublished Price-Sensitive Information (UPSI). The question here is, what is ‘unpublished’ information.

This was recently examined in the SEBI’s order issued in February 2021 in the matter of Future Retail. In this order, Kishore Biyani and certain other persons were held to have violated the insider trading regulations by purchasing Future Retail’s shares before the announcement of a scheme by Future Retail to hive off its HomeTown and FabFurnish businesses. The announcement had a positive impact on Future Retail’s share price.

Biyani’s side argued that such information was not “unpublished” since it had already been reported in the media. They cited an interview in which Biyani had stated that Future Retail planned to exit several specialty retail formats including HomeTown. Rejecting this argument, the SEBI held that the level of detail reported in the media was significantly lesser than the information in Future Retail’s formal announcement, which included the proposed share-swap ratio, details of securities to be issued, and other particulars. This is not a new issue.

‘Speculative reports’

In one of the early cases under the 1992 Insider Trading Regulations, Hindustan Lever was investigated for purchasing shares of Brooke Bond Lipton India in the period leading up to the announcement of a merger between the two companies in 1996. Although the SEBI concluded that there was a violation under the 1992 Insider Trading Regulations, the Appellate Authority held that the SEBI was not justified in prosecuting Hindustan Lever since expectations of the merger were widespread in the market. Following this decision, an explanation was added to the 1992 Regulations in 2002 stating that “speculative reports in print or electronic media shall not be considered as published information.”

Subsequently, the 1992 Regulations were replaced in 2015. Under the 2015 Regulations (which are currently in force) information is considered unpublished when it is not “generally available”. “Generally available information” is defined as “information that is accessible to the public on a non-discriminatory basis”. Notably, the explanation under the 1992 Regulations (as amended in 2002) did not find a place under the 2015 Regulations.

In October 2020, the SEBI took a different view from Future Retail in the Gopal Vittal matter where it relied on availability of information regarding an acquisition in media reports and on news channels as making it generally available in the public domain. The order in the Future Retail matter is sound and unimpeachable since information should be considered “generally available” only when all the material particulars are disclosed. However, the question is whether the current regulations support such a view, particularly when considering that the explanation that was introduced in 2002 has since been left out.

After traversing a full circle, it may be time to put this issue to rest – the explanation regarding speculative reports in print or electronic media not constituting “published information” (which was included in the regulations in 2002 but omitted in 2015) may be a helpful addition. This would be even more relevant in the age of social media where public confidence in the authenticity of media reports may not be at the same level as before.

(The authors are advocates with S&R Associates, a law firm)