Analysis of Provisions, Offences

&Penalties

[ICLS Mid Career Training Programme] 07.01.2013 | Session II

SEBI Prohibition of Insider TradingRegulations

By

MANOJ KUMARAssistant Vice President

Corporate Professionals Capital Private Limited

• Investigation

• Prohibition on dealing, communicating or counseling

• Key Terms

• Procedure for Investigation

• Direction by SEBI

• Disclosures to be made

• Action in case of Default

• Model Code of Conduct

Agenda

WHAT IS INSIDER TRADING????

INSIDER TRADINGmeans

dealing in the securitiesby an Insider,

who has the knowledge ofmaterial “inside” information

of the companywhich is not available in the

Public domain.

Who Is an INSIDER ?????

is wasOR

connected with the company OR

deemed to have been connected with the company

AND

is expected to have access toUNPUBLISHED PRICE SENSITIVE INFORMATION

Has Received Has Had Access TO

UNPUBLISHED PRICE SENSITIVE INFORMATION

OR

Any Person

Who

OR(ii)

(i)

INSIDER - REGULATION 2(e)

is a director under section 2(13) of the Companies Act, 1956, or

deemed to be a director of that company under section 307(10) of the Act

may reasonably to have an access to Unpublished Price Sensitive Information

Professional relationship

Business relationship

Any Person

an officer an employee

Who

OR

Whether TEMPORARY or PERMANENT

Holds the position Involving

or or

AND

CONNECTED PERSON

“CONNECTED PERSON”

Shall mean

any person

who is a connected person

prior to an act of insider trading

EXPLANATION TO CONNECTED PERSON

SIX MONTHS

6

6

6

6

Member of Board of Directors or employee of PFI;

Member of the Board of MF or member of BOD of the AMC of a MF or is an employee who have a fiduciary relationship with the company;

MB, STA, RTA, DT, Broker, sub-broker, PM, IA, IC, or employee;

Intermediary, IC, TC, AMC, or employee or director or official of Stock Exchange or Clearing House;

Company under the same Management/ Group/Subsidiary;

PERSON DEEMED TO BE CONNECTED -REGULATION 2(h)

Any Concern / Firm / trust / HUF/ Company / AOP in which connected person or person mentioned in clause (vi), (vii) or (viii) of this clause

Have More than 10% of the holding or Interest

Relatives of the connected person;

Banker of the company;

Relative of any of the aforementioned persons;

Official or an employee of a Self-regulatory Organization;

PERSON DEEMED TO BE CONNECTED -REGULATION 2(h)

What Is Price Sensitive Information ?????

Price Sensitive Information means:

information which relates directly or indirectly

to a company

AND

which if published is likely to

materially affect the price of securities of company.

PRICE SENSITIVE INFORMATION-REGULATION 2(ha)

DEEMED PRICE SENSITIVE INFORMATION

Periodical financial results of the company;

Intended declaration of dividend;

Issue of securities or buy back of securities;

Major expansion plan OR Execution of new projects;

Amalgamations, merger, takeovers;

Disposal of whole or substantial part of the undertaking;

Changes in policies, plans or operations

PRICE SENSITIVE INFORMATION- AS PER CLAUSE 36 LISTING AGREEMENT

Change in the general character or nature of business.Disruption of operations due to natural calamity.Commencement of Commercial Production/ Commercial Operations.

Litigations/ dispute with a material Impact.

Revisions in Ratings.

PRICE SENSITIVE INFORMATION- AS PER CLAUSE 36 LISTING AGREEMENT

Any other information having bearing on the operation/ performance of the Company as well as price sensitive information which includes but not restricted to;

• Change in market lot / sub-division ;• Voluntary delisting by the company ;• Forfeiture of shares;• Alteration in terms of any securities ;• Information regarding securities issued abroad ;• Cancellation of dividend/ rights/ bonus etc.

OFFICER OF A

COMPANY

Means

Person defined in Section 2(30) of the Companies

Act, 1956

Section 2(30) : "officer" includes any director, manager or secretary, or any person in accordance with whose directions or instructions the Board of

directors or any one or more of the directors is or are accustomed to act.

Includes

Auditor of the Company

OFFICER OF A COMPANY – REGULATION 2(g)

UNPUBLISHED -REGULATION 2(k)

Information which is not published by the company or its agents and is not specific in nature.

ExplanationSpeculative reports in print or electronic media shall not be considered as published information.

DEALING IN SECURITIES - REGULATION 2(d)

“Dealing In Securities” means an act of Subscribing, Buying, selling

oragreeing to subscribe, buy, sell

or deal in any securitiesby any person

either

as principal or agent;

PROHIBITION ON DEALING, COMMUNICATING OR COUNSELLING

NO INSIDER

On Other’s behalf Either on his own behalf

DEAL IN SECURITIES OF THE COMPANY

or

shall

IN POSSESSION OF ANY UPSI

when

COMMUNICATE / COUNSEL / PROCURE

Directly Indirectly or

ANY UPSI TO ANY PERSON

or

PROHIBITION ON INSIDER-REGULATION 3

Any communication which is required in the

Ordinary course of business, OR

Profession, OR

Employment, OR

Under any law.

EXCEPTION TO REGULATION 3

NO COMPANY

Deal in Securities of

or

IN POSSESSION OF ANY

Other company Associate of that other company

UNPUBLISHED PRICE SENSITIVE INFORMATION

WHEN

SHALL

PROHIBITION ON COMPANY- REGULATION 3A

NON APPLICABILITY OF REGULATION 3A

The decision of

transaction or

agreement

was not taken by officer or employee

of the company who is in

possession of UPSI;

AND

Proper arrangement in place to

block the dissemination of

UPSI; AND

Adequate Procedures are in place to demarcate the persons

having UPSI & persons dealing in securities; AND

The informatio

n was

not so communicated and

no such advice was so given;

OR.The acquisition was in line with the SEBI

Takeover Regulations

PROVISIONS RELATING TO VIOLATION – REGULATION 4

Any insider, whodeals in securities

in contravention of theprovisions of Regulation 3 or 3A

shall beguilty of Insider Trading..

INVESTIGATION

POWER TO MAKE INQUIRIES AND INSPECTION- REGULATION 4A

If the Board Suspects any person has violated the provisions of these

Regulations

It may Make enquiries,

or

appoint person to inspect books & records of such persons

Form a prima facie opinion ,

whether there is violation of these regulations

BOARD’S RIGHT TO INVESTIGATE -REGULATION 5

Where the Board, is of prima facie opinion that it is necessary to investigate and inspect

books of account, documents ofan insider or any person

On the basis of compliant received form investors, intermediaries or any other person,

Or suo-motu upon its own knowledge, to protect the interest of investors, it may

appoint an INVESTIGATING AUTHORITY

PROCEDURE FOR INVESTIGATION

REGULATION 6 to 9

On Complaints

/ Suo-moto

Appointment of

Invtg. Auth.

Notice Issued

Investigation

Started

To provide

all assistance

On Conclusion

Report to Board

Findings to

suspected person

Shall Reply

within 21 days

Board will

Issue directions

DIRECTIONS BY SEBI

REGULATION 6 to 9

Not to deal in securities ;

Not to dispose of any of the securities acquired in violation of these regulations;

Not to communicate or counsel any person to deal in securities;

Declaring the transaction(s) in securities as null and void;

Deliver the securities back to the seller :

To transfer proceeds to the investor protection fund of a recognized stock exchange.

Action in case of default

REGULATION 14

• Action under Section 11 of SEBI Act, 1992• Directions under Section 11(4) (suspension of Trading & debarment)

• Directions under section 11B of the SEBI Act• Cease and desist order in proceedings under section 11D of the

Act;• Penalty for failure to furnish information, return etc. under section

15A of the SEBI Act, 1992• Monetary penalties under section 15G of SEBI Act, 1992 (upto 3X

or Rs. 25 Cr. whichever is higher)• Criminal prosecution under section 24 of the SEBI Act (ten year

imprisonment or fine upto Rs. 25 cr.)

DISCLOSURE TO BE MADE

Regulation No.

Particulars By whom To whom Time limit

Form

13(1) On the acquisition of >5%

Any Person Company 2 working

days

A

13(2) Disclosure of shares or voting rights held and positions taken in derivatives by such person and his dependents (as defined by the company) on becoming the Director or officer

Director or officer

Company 2 working

days

B

13(2A) Disclosure of shares or voting rights on becoming the promoter or part of promoter group

Promoter or person

belonging to promoter group

Company 2 working

days

B

13(3) Change in shareholding of (±) >2% from the last disclosure made under sub regulation (1) or under this sub regulation.

Persons already holding more

than 5%

Company 2 working

days

C

DISCLOSURE REQUIREMENT

Regulation No.

Particulars By whom To whom Time limit

Form

13(4) Change in holding in excess of Rs.5 Lakh in value or 25,000 shares or 1% of total shareholding or voting rights from the last disclosure made under sub regulation (2) or under this sub regulation.

Director or officer

Company as well as Stock

Exchange

2 working

days

D

13(4A) Change in holding in excess of Rs.5 Lakh in value or 25,000 shares or 1% of total shareholding or voting rights from the last disclosure made under Listing Agreement or under sub regulation (2A) or under this sub regulation.

Promoter or person

belonging to promoter

group

Company as well as Stock

Exchange

2 working

days

D

13(6) On the receipt of disclosure under 13(1), 13(2), 13(2A), 13(3), 13(4) and 13(4A)

Company Stock Exchange

2 working

days

A or B or C or D as the case

may be

DISCLOSURE REQUIREMENT

Model code of conduct

CODE OF CONDUCT TO BE ABIDE BY

ALL LISTED COMPANIESOrganizations Associated with Securities Markets including:• All intermediaries• AMC and trustees of mutual funds;• The Self Regulatory Organizations;• The Stock Exchanges / Clearing House /

Corporations;• The Public Financial Institutions• The Professional Firms

Such as Auditors, Accountancy Firms, Law Firms, Analysts, Consultants, etc., assisting or Advising Listed Companies

SCHEDULES – MODEL CODE OF CONDUCT

SCHEDULE IMODEL CODE OF CONDUCT

FOR PREVENTION OF INSIDER TRADINGPART A - FOR LISTED COMPANIES

PART B – FOR OTHER ENTITIESSCHEDULE II

CODE OF CORPORATE DISCLOSURE PRACTICESFOR

PREVENTION OF INSIDER TRADING

IMPORTANT TERMS- NEED TO KNOW

• PSI should be disclosed only to those within the company who need the information to discharge their duty.

• Limited access to confidential information• Files containing confidential information shall

be kept secure.• Computer files must have adequate security of

login and pass word etc.

PRE CLEARANCE OF TRADES

• All D/O/E of the Co and their dependants as defined by the company who intend to deal in the securities beyond a limit should pre-clear the transactions.

• An application to the Compliance officer indicating• The estimated number of securities that the D/O/E and

their dependants intends to deal in,• The details as to the depository with which he has a

security account,• The details of securities in such depository mode.• Other details as may be required by any rule made by

the company in this behalf.

TRADING WINDOW

• Company shall specify a trading period, to be called "Trading Window", for trading in the company’s securities.

• The trading window shall be closed during the time the Price Sensitive information is un-published.

• When the trading window is closed, the D/ E shall not trade in the company's securities in such period.

• The trading window shall be opened 24 hours after the Price Sensitive Information is made public.

RESTRICTED /GREY LIST

To restrict trading in certain securities and designate such list as restricted / grey list.

Client Companies for which any assignment or appraisal report or credit rating assignments are going on.

Any security which is purchased or sold by the organisation / firm on behalf of its clients / schemes of mutual funds, etc. shall be put on the restricted / grey list.

As the restricted list itself is a highly confidential information, It shall be maintained by CO.

CHINESE WALL

• "Chinese Wall" policy demarcates “inside areas” from "public areas".

• Those areas having access to confidential information, considered “inside areas” and areas which deal with sales / marketing / investment considered "public areas".

• The employees in the inside area shall not communicate any PSI to anyone in public area.

• In exceptional circumstances employees from the public areas may be brought "over the wall" and given confidential information on the basis of "need to know" criteria, under intimation to the CO

Compliance Officer means ‘Senior Level Employee’ who shall report to the MD / CEO.

The CO shall be responsible for

- setting forth policies, procedures

- monitoring adherence to the rules for the preservation of “PSI”,

- pre-clearing of designated employees’ and their dependents’ trades

- monitoring of trades and the implementation of the code of conduct

under the overall supervision of the Board of the listed company.

The CO shall maintain a record of the designated employees and any

changes made in the list of designated employees.

To Provide clarifications regarding the SEBI (Prohibition of Insider

Trading) Regulations, 1992 & the company's code of conduct to the Company’s employees.

COMPLIANCE OFFICER (CO)

Lastly………….

It is easier to identify the beneficiaries of insider dealing

Butthe extent of losses occurred to the

general investor isimpossible to calculate

Thanking you …

Manoj KumarAssistant Vice President

Corporate Professionals Capital Private Limited

D-28, South Extension –I, New Delhi-110 049Ph: +91.11.40622200; Fax: +91.11.40622201; E: Manoj@indiacp.com | M: +91.9910688433