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    • SEBI’s proposal to revise the definition of UPSI under insider trading
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    SEBI’s proposal to revise the definition of UPSI under insider trading

    Online Niel Posted on

    Consultation Paper on Proposed Revision of Definition of UPSI under SEBI (Prohibition of Insider Trading) Regulations, 2015

    SEBI conducted a study on significant events disclosed to stock exchanges and events classified as UPSI by listed entities. It was observed that companies were only classifying items explicitly mentioned in Regulation 2(1)(n) of the PIT Regulation as UPSI, thus not complying with the law in spirit.

    Thus, SEBI felt that there is a need to revise the definition of UPSI to bring regulatory clarity, certainty and uniformity in compliance for listed companies. Accordingly, SEBI issued a consultation paper seeking public comments on the proposal to amend the definition of UPSI under Regulation 2(1)(n) of the PIT Regulations, 2015 to include “significant event under Regulation 30 of the LODR Regulation. SEBI did not go ahead with this proposal.

    Meanwhile, SEBI has brought changes in the timelines and raised the threshold for certain disclosure requirements under Schedule III of the SEBI LODR. In addition, SEBI has also proposed to revise the provisions relating to trading plan for designated persons, facilitating trading in shares of the company by designated persons when they hold unpublished price sensitive information. As there is certainty in the identification of events or information, SEBI has now proposed to expand the illustrative list of UPSI by including the following events or information:

    Sl. Not Events or information Motivation
    1 Change in ratings In terms of rating revisions, companies often receive revalidated letters or the same ratings for new securities issues from time to time, which generally cannot have any impact on share prices. Therefore, only upward/downward revision can be included in the illustrative list of events in the UPSI definition
    2 Fundraising proposed to be undertaken Fundraising” The decision on the proposed fundraising to be undertaken is not currently included in the definition of UPSI. Therefore, the same is proposed to be included in the illustrative list of events in the UPSI definition.
    3 Agreements, by any name, that have an impact on the management and control of the company” Only those arrangements that have an impact on the management and control of the company and are known to the company can be considered price sensitive and can be included in the illustrative list of events in the UPSI definition.
    4 “Fraud or default by a listed entity, its promoter, director, key management personnel, senior management or subsidiary or arrest of key management personnel, senior management, promoter or director of the listed entity, whether occurring in India or in ABROAD This information would be considered UPSI.
    5 “Change of key management personnel, other than due to retirement or end of term and resignation of a statutory auditor or secretary auditor It is proposed to include the resignation of a statutory auditor or secretary auditor in the illustrative list in the UPSI definition.
    6 “Resolution Plan/ Restructuring/single settlement in relation to loans/borrowings from banks/financial institutions It is now proposed to be included in the illustrative list in the UPSI definition
    7 Admission of winding-up application filed by any party/creditors, admission of application by the corporate applicant or financial creditors to initiate corporate insolvency resolution process (CIRP) of a listed corporate debtor and its approval or rejection in accordance with the Insolvency Code Not all CIRP related events listed above may impact the share price, but admission of application for initiation of CIRP and approval/rejection of resolution plan by NCLT may be price sensitive.
    8 Initiating forensic audit (by whatever name called) by the company or any other entity to detect misstatements in financial statements, misappropriation/misappropriation or misappropriation of funds and receiving the final forensic audit report.” It is proposed to include the above in the illustrative list in the UPSI definition. For clarity, the event/information may be aligned with SEBI’s FAQs on types of forensic audits required to be disclosed under LODR regulations
    9 “Actions brought or orders made by any regulatory, statutory, enforcement or judicial body against the listed entity or its directors, key management personnel, senior management, promoter or subsidiary, in relation to the listed entity” The events in Clauses 19 and 20 of Paragraph A of Part A of Schedule III may be price sensitive and are proposed to be included in the illustrative list in the UPSI definition.
    10 mergers, dissolutions, acquisitions, deletions, assignments and expansion of businesses, assignment or termination of orders/contracts that are not in the normal course of business and other such transactions”. The events described in clause 4 of point B are expected to have a significant impact on the revenues and profitability of a company. Given the potential to impact a company’s financial performance, it is recommended that such events be included in the illustrative list in the definition of UPSI in Regulation 2(1)(n)(iv) of the PIT Regulation.
    11 The outcome of any disputes or litigation that may impact the listed entity” The original order and the pendency or any litigation is available in the public domain i.e. the website of the judicial authority; therefore, in WG’s view, this may not be price sensitive. However, the outcome of such litigation or disputes may be price sensitive and may be included in the illustrative list in the UPSI definition.
    12 Granting warranties or indemnities or becoming a guarantor, by any name named, for any third party Guarantees/indemnity/warranty etc. may be in the ordinary course of business. However, there may be cases where such warranties/indemnities/warranties etc. are not in the normal course of business and have the potential to have a negative impact on the listed entity’s financial position.
    13 grant, withdraw, surrender, cancel or suspend key licenses or regulatory approvals The events in clause 12 of paragraph B of Part A of Annex III may be price sensitive and are proposed to be included in the illustrative list in the definition of UPSI

    The above consultation document is open for public comment until 30 November 2024. This consultation document can be accessed at the link below:

    SEBI’s proposed revision of the definition of UPSI under insider trading regulations

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    Disclaimer: This article provides general information existing at the time of preparation and we assume no responsibility to update it with subsequent changes in the law. The article is intended as a news update and Affluence Advisory does not assume or accept any responsibility for any loss caused by any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not replace the need to refer to the original pronouncement

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