Insider Trading
It refers to the practice of purchasing or selling or dealing a publicly-traded company’s securities by a director, officer and employee of the company or any other person, having knowledge of unpublished price sensitive information which is not yet public information. This material information may result in a substantial impact on the decision of an investor regarding whether to purchase or sell securities.
Trading: Trading means and contains subscribing, buying, selling, dealing, or approving to subscribe, buy, sell, deal in any securities, and trade shall be interpreted accordingly.
Unpublished Price Sensitive Information: any sensitive information or facts, relating to a company or its securities may be directly or indirectly means and that is not usually accessible which upon becoming usually accessible, is probable to have material effects on the rate of the securities and shall, ordinarily including but not restricted to, information relating to the following –
- Financial results;
- Dividends;
- Alteration in capital structure;
- Mergers, de-mergers, acquisition, delisting, disposals and expansion of business and such supplementary transactions;
- Modifications in key managerial personnel; and
- Material events in harmony with the listing agreement.
Compliance Officer
The duties of the compliance officer include closure of the trading window prior to key announcements, during which period employees are prohibited from trading in securities of the company. The key question for SEBI’s consideration was the extent to which the compliance officer must be deferential to the board. Who are eligible for the role of Compliance Officer:
- any senior officer who is designated so and reporting to the board of directors or head of the organization in those situation where board is not there;
- who is commercially knowledgeable and is capable of escalating requirements for legal and regulatory submissions under these regulation;
- who shall be answerable for compliance of policies, procedures, maintenance of records, checking adherence to the rules for safeguarding of unpublished price sensitive information; and
- monitoring of trades and the implementation of the codes quantified in these regulations under the general supervision of the board of directors of the listed company or the head of an organization, as the case may be.
Further, not only Directors, employees or officers of the company are held liable for insider trading but “Connected person” are also held liable against the same.
Connected Person
It has two categories as under:
Actually Connected Person: Any person who is or has during the 6 months preceding to concerned act been allied with a company by directly or indirectly means and in any capacity including:
- by reason of numerous communication with its officers; or
- by being in any contractual, fiduciary or employment relationship; or
- being a director, officer or an employee of the company; or
- holds any position including a professional or business relationship between himself and the company whether temporary and permanent.
that allows such a person may be thorough directly or indirectly means access to unpublished price sensitive information or is equitably anticipated to allow such access.
Deemed Connected Person: Following categories shall be deemed to be connected persons unless the contrary is established-
- an immediate relative of the connected person as mentioned above; or
- any holding company or associate company or subsidiary company; or
- an intermediary or an employee or director thereof; or
- an investment company or trustee company or assets management company or an employee or director thereof; or
- an official of a stock exchange or of clearing house or corporations; or
- a member of board of trustees of a mutual fund or a member of the board of directors of the assets management company of mutual fund or is an employee thereof; or
- a member of board of directors or an employee, of a public financial institution
- an official or an employee of a self-regulatory organization recognized or authorized by Board; or
- a banker of the company; or
- a concern, firm, trust, HUF, corporation or association of persons wherein a director of a company or his immediate relative or banker of the company who possesses more than 10% of the holding or interest in the said company.
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