SEBI’s new insider-trading rules come with fresh curbs on promoters, employees and those closely linked to listed companies. According to a recent diktat of the BSE and the NSE, issued in line with the new regime on unpublished price sensitive information (UPSI), the compliance officer of a company will no longer be at liberty to decide on the closure of trading window on origination of UPSI.

The trading window is a specific period during which dealing in the equity shares of the company and its transfer is allowed by a company mainly for its promoters and employees. According to SEBI’s prohibition of insider-trading norms, trading window should remain closed when the UPSI is generated and 24 hours after it is published. The UPSI could come from any corporate announcement that the company could be planning to make or specifically during announcement of its financial results every quarter.

So far, it was the company which decided when its ‘trading window’ could close, but the BSE and NSE have now said “it will mandatorily remain closed at the end of each quarter up to the expiry of 48 hours from the declaration of financial results of a company’s previous quarter”.

Legal experts say, such a diktat by the stock exchanges will have far-reaching impact for company promoters and its employees as effectively the trading window for most companies may remain shut for nearly 200 out of 365 days. The 200-day calculation is based on the maximum time allowed for companies to announce financial results every quarter. But it also means that each company will have to rush to declare its quarterly results to keep the ‘trading window’ open for a maximum number of days, experts say.

“The new rules will not only place the promoter or the company’s employees in a position of disadvantage and subject them to higher financial and statutory difficulties but will also be challenging even in terms of planning for any corporate action or fund-raising. Unless there is further clarification or exemption explicitly provided or legal precedent, the rule may lead to confusion and ambiguity in the markets,” said Deepika Sawhney, Partner, Corporate Professionals, a legal advisory firm.

‘Restrictive’

Sawhney is of the view that the new rules are restrictive even for share pledging or rising funds by promoters via loan against shares.

It would further affect planning and execution of transactions such as preferential allotment, rights issue, takeovers, ESOPs, warrant conversion and other similar transactions, which need not particularly be in the nature of insider-trading. Earlier, there were no specific rules on promoter or employees of any company holding UPSI.

But SEBI decided to hold company promoters, irrespective of their shareholding status, responsible for violation of insider-trading norms if they possess UPSI regarding the company without any ‘legitimate’ purpose.

SEBI made changes to rules after it found that UPSI about company’s financial results was leaked via WhatsApp by those higher in the company possessing it. Also, in a deal between Sabero Organics and Coromandel International, SEBI found that certain top people were in possession of UPSI without purpose.

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