Issuance Of Guidance Note On Prevention Of Insider Trading (Revised Edition)

In normal financial parlance, insider trading refers to an act of trading in the financial assets in form of securities of a company by those individuals who comprise of the management of the company or are in a close relation to them forming the parameter of a secret, undisclosed or Price Sensitive Information (UPSI) which is not generally made available to the public at large.

Subsequent to the release of the Guidance Note on Prevention of Insider Trading major amendments were introduced in the PIT Regulations by SEBI during the year 2020 and 2021. These amendments have significantly evolved the legal framework on the subject, which essentially have led to revision of the Guidance Note on Prevention of Insider Trading with an objective to provide updated guidance on the subject to all stakeholders.

Under the present guidance note, the role of a compliance officer has been given huge responsibility to ensure proper compliance mechanism and cover the regulations in depth. “Compliance Officer” means any senior officer, designated so and reporting to the board of directors or head of the organization in case board is not there, who is financially literate and is capable of appreciating requirements for legal and regulatory compliance under these regulations and who shall be responsible for compliance of policies, procedures, maintenance of records, monitoring adherence to the rules for the preservation of unpublished price sensitive information, monitoring of trades and the implementation of the codes specified in these regulations under the overall supervision of the board of directors of the listed company or the head of an organization, as the case may be. Explanation – For the purpose of this definition, “financially literate” shall mean a person who has the ability to read and understand basic financial statements, i.e., balance sheet, profit and loss account, and statement of cash flows.

The guidance note has been prepared keeping in mind various stakeholders of the company and law enforcement mechanism so that the interests of all strata of society are safeguarded and kept in mind to prevent injustice to any single sect of the company.

The guidance note has also made a sincere attempt to give out a holistic set of knowledge for PIT Regulations by the incorporation of PIT regulations, including prominent and landmark judgments relating to insider trading and to give explanations, illustrations, procedures and real life dimensions of PIT regulations given from time to time.

The revised edition of the Guidance Note on Prevention of Insider Trading besides covering updated regulatory provisions of the PIT Regulations, also includes relevant circulars, specimen format of disclosures, important case laws and informal guidance issued by the SEBI on the subject to facilitate easy understanding and compliance of the PIT Regulations both in letter and spirit.

The guidance note has also been given an addition of specimen format of disclosures which has added on to the PIT regulations and has incorporated the recommendations of the “Vishwanathan Committee” so as to make fool proof system against insider trading.