Introduction
On April 21, 2025, Securities and Exchange Board of India (SEBI) issued a circular SEBI/HO/ISD/ISD-PoD-2/P/CIR/2025/55 that significantly amends the existing framework under the SEBI (Prohibition of Insider Trading) Regulations, 2015. The circular extends the automated trading window closure mechanism, which was applicable solely to Designated Persons (DPs), to also include their immediate relatives. This regulatory update comes in the context of financial results announcements and aims to further enhance market integrity by mitigating the risk of indirect insider trading.
Background and Regulatory Context
The circular is issued under the statutory authority conferred by Section 11(1) of the Securities and Exchange Board of India Act, 1992, and is further supported by Regulations 4(3) and 11 of the Prohibition of Insider Trading (PIT) Regulations, 2015.
Previously, Clause 4 of Schedule B mandated that a notional trading window be applied to monitor trading activities by Designated Persons whenever it was reasonably anticipated that such persons might possess Unpublished Price Sensitive Information (UPSI).
Current circular reinforces these provisions by ensuring that, during the trading window closure, not only the Designated Persons but also their immediate relatives are excluded from trading in the relevant securities.
Key Provisions of the Circular
- Scope of Coverage: The circular clarifies that when the trading window is closed, either because a DP or a class of DPs are expected to have access to UPSI, the prohibition on executing trades extends to both the Designated Persons and their immediate relatives. This extension is a proactive measure designed to prevent indirect insider trading that might occur through close family connections.
- Automated Enforcement Mechanism : To facilitate compliance and minimize inadvertent breaches of the regulations, SEBI mandates the develop a system to restrict trading by DPs of listed companies during trading window closure period by freezing of PAN of DPs at security level. This system mandates the freezing of PAN (Permanent Account Number) at the security (ISIN) level for the concerned individuals. The mechanism is designed to be both comprehensive and efficient, ensuring that any trading activity by the affected parties is automatically restricted during the prescribed period.
Phase-Wise Implementation Timeline
To ensure a systematic transition, the circular prescribes a phased implementation schedule:
- Phase 1: The automated mechanism will initially be implemented for the top 500 companies based on the BSE market capitalization as of March 31, 2025, which are listed on the BSE, NSE, and MSEI. The PAN-ISIN freeze for these companies is set to commence on July 01, 2025.
- Phase 2: In a subsequent phase, the framework will be extended to cover all remaining companies listed on the aforementioned exchanges, as well as any companies that become listed after the issuance of the circular. The effective date for Phase 2 implementation is October 01, 2025.
Roles and Responsibilities
The circular assigns distinct responsibilities to various market participants:
- Listed Companies: They are responsible for ensuring the accuracy of the data provided regarding the Designated Persons and their immediate relatives. Moreover, companies must designate the precise start and end dates for the trading window closure and communicate any subsequent changes within the stipulated timelines.
- Designated Depositories (DDs): The DDs are charged with facilitating secure access to the system, auto-populating the requisite data fields, and transmitting the verified details to the stock exchanges and depositories. They are also responsible for ensuring daily updates during the closure period to accommodate any modifications.
- Stock Exchanges and Other Depositories: These entities are required to enforce trading restrictions by freezing the PAN at the security level, thereby preventing trading activities by individuals affected by the closure. They must also monitor compliance and submit quarterly reports to SEBI, as specified in Annexure C.
Supplementary Annexures
The circular is accompanied by three annexures, each serving a specific function:
- Annexure A provides a detailed procedural guideline for the implementation of the automated system, outlining each step from data submission to the execution of the trading window closure.
- Annexure B includes a process flowchart that graphically represents the operational sequence from system access and data verification to the eventual enforcement of the freeze and subsequent de-freeze procedures.
- Annexure C delineates the format for the quarterly reporting by depositories, ensuring that comprehensive data regarding the implementation, including the number of companies affected, unique PANs processed, and the count of exemptions granted, is accurately captured and reported to SEBI.
