Insider Trading is an act of subscribing, buying, selling, dealing or agreeing to subscribe, buy, sell or deal any securities of the company, by an insider, when in possession of any non-public price sensitive information. In India, Insider Trading is regulated by SEBI (Prohibition of Insider Trading) Regulations, 2015.
(a) Who is an insider?
Insider means any person who is a connected person or who is in possession or has access to unpublished price sensitive information. “Connected person” includes employees of the company, directors and their relatives, bankers, officials of stock exchanges etc. (b) What is unpublished price sensitive information (UPSI)?
UPSI is any information, relating to a company or its securities, directly or indirectly, that is not generally available and which upon becoming generally available, is likely to materially affect the price of the securities. (c) What is a preclearance?
Preclearance is seeking approval from the compliance office before trading in the securities of the company. All insiders trading in the securities of the company need to apply to the compliance officer and take a permission to trade. This preclearance is valid for a maximum period of 7 days. The insider has to execute the trade within 7 days of receiving the preclearance. (d) What is a contra trade?
An insider trading in securities cannot execute an opposite transaction within 6 months or such period as mentioned in the Code of Conduct. For example: If an insider has purchased shares on say 1 Jan 2015, shares cannot be sold until 30 June 2015. If the insider sells shares before 30 June 2015, the profits from such trade shall be paid to the Investor Protection and Education Fund.
An insider is required to submit details of holdings of self and relatives within 7 days of joining or being categorized as an insider (Initial disclosures). On an ongoing basis, an insider has to submit disclosures when the traded value in the securities of the company, for self and relatives, during a calendar quarter exceeds the threshold limit which is currently 10 lacs (Continuous disclosures). This is a stock exchange reporting requirement.
As an employee, you do not have to submit initial disclosures. However even if you are not an insider but the traded value of securities of the company exceeds the threshold limit of 10 lacs during a calendar quarter, continuous disclosure reporting is required.
An insider can formulate a trading plan and get it approved from the compliance officer. This trading plan shall set out either the value of trades to be effected or the number of securities being purchased. Once a trading plan has commenced, the insider shall have to compulsorily trade based on the approved plan without deviating from it or executing any trade outside the scope of the trading plan.
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