Compliance Requirements under the Regulations

1. Compliance of Structural Digital Database (Regulation 3(5) & 3(6); BSE Notice No. 20221028-15)

Board of Directors or the head(s) of the organization who are in charge of unpublished price sensitive information are to be responsible for maintenance of SDD (database) as per requirements of the PIT Regulations, 2015. Companies are required to submit a quarterly compliance certificate certified either by the compliance officer or a Practicing Company Secretary (PCS), as a Standard Operating Process within 21 days from end of quarter.

      2. Prohibition on Communication or Procurement of Unpublished Price Sensitive Information (UPSI) (Regulation 3(1))

No insider shall communicate, provide or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

It is to be noted that under:

a) Reg. 3(2) – No person shall procure from or cause the communication by any insider of unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations

b) Reg 3(3)– UPSI may be communicated/provided/allowed access to/procured w.r.t obligation to make an open offer /other than open offer ,in the manner prescribed in Reg.3(3)

c) Reg 3(4)– For the purposes of Reg 3(3), necessary NDA/Confidentiality Agreements may be executed

      3. Policy for Determination of “Legitimate Purposes (Regulation 3(2A)

The Board of Directors of a listed company shall make a policy for determination of “legitimate purposes” as a part of “Codes of Fair Disclosure and Conduct” formulated under Regulation 8.

For the purpose of illustration, the term “legitimate purpose” shall include sharing of unpublished price sensitive information in the ordinary course of business by an insider with partners, collaborators, lenders, customers, suppliers, merchant bankers, legal advisors, auditors, insolvency professionals or other advisors or consultants, provided that such sharing has not been carried out to evade or circumvent the prohibitions of these regulations

     4. Maintenance of Structural Digital Database (SDD) (Regulation 3(5))

The Board of Directors or head(s) of the organisation of every person required to handle UPSI shall ensure that a Structural Digital Database is maintained containing the nature of UPSI and the names of persons who have shared information or with whom information is shared along with PAN or any other legal identifier where PAN is not available.

Such database shall not be outsourced and shall be maintained internally with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database. Entry of information, not emanating from within the organisation, in structured digital database may be done not later than 2 calendar days from the receipt of such information.

      5. Time Period for Preservation of SDD (Regulation 3(6))

The Board of Directors or head(s) of the organization must ensure that the Structural Digital Database is retained for at least eight years after completion of the relevant transactions. Where SEBI initiates any investigation or enforcement action, the SDD shall be preserved until the proceedings are concluded.

      6. No Insider to Trade When in Possession of UPSI (Regulation 4)

No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information.

Exceptions:

i) Transaction is off market inter-se transfer between insiders who were in possession of same UPSI without being in breach of Reg, 3 & such UPSI wasn’t obtained under Reg. 3(3)

ii) Transaction was carried out through block deal window mechanism between persons who were in possession of same UPSI without being in breach of Reg. 3 & such UPSI wasn’t obtained under Reg. 3(3)

iii) Transaction was carried out pursuant to statutory/regulatory obligation to carry out a bona fide transaction

iv) Transaction was undertaken pursuant to exercise of stock options in respect of which exercise price was pre-determined in compliance with app. Regulations

v) In case of non-individual insiders:

1. 1. individuals in possession of UPSI were different from individuals who took trading decisions & they weren’t in possession of UPSI at time of decision
   2. individuals in possession of UPSI did not pass such info to those who took trading decisions

vi) Trades were pursuant to a trading plan as per Reg 5

      7. Reporting of Off-Market Trades by Insiders (Regulation 4(1)(i))

Any off-market trades shall be reported by insiders to the company within two working days, and the company shall in turn notify the stock exchange on which the securities are listed within two trading days from receipt of such disclosure or from becoming aware of such information

      8. Formulation of Trading Plan by an Insider (Regulation 5(1) & (2))

An insider shall be entitled to formulate a trading plan and present it to the compliance officer for approval and public disclosure pursuant to which trades may be carried out on his behalf in accordance with such plan.

Such trading plan shall: –

(i) not entail commencement of trading on behalf of the insider earlier than [one hundred and twenty calendar days] from the public disclosure of the plan;

(ii) not entail overlap of any period for which another trading plan is already in existence

(iii) set out the parameters for each trade to be executed like value of trade/no. of shares to be traded, nature/date/time period(not exceeding 5 consecutive trading days) of trade, price limit (buy/sell trade -upper/lower price limit shall be between the closing price on day before submission of trading plan & up to 20%+/- than such closing price. Price limit is an optional requirement. Adjustments can be made in number of securities/price limit in case of corporate action related to bonus issue/stock split after approval of trading plan, after approval of Compliance Officer & same to be notified to S.E.

(iv) not entail trading in securities for market abuse.

      9. Approval / Rejection of Trading Plan by the Compliance Officer (Regulation 5(5))

The compliance officer shall approve or reject the trading plan within two trading days of receipt of the trading plan.

     10. Notification of Approved Trading Plan to the Stock Exchange (Regulation 5(5))

The compliance officer shall approve or reject the trading plan within two trading days of receipt of the trading plan and notify the approved plan to the stock exchanges on which the securities are listed, on the day of approval.

Penalty & Punishment

Reg 10 provides that any contravention under the PIT Regulations shall be dealt by SEBI as per SEBI Act, 1992.

Sec 15A of SEBI Act:

If any person, who is required under this Act or any rules or regulations made thereunder,—

(a)  to furnish any document, return or report to the Board, fails to furnish the same [or who furnishes or files false, incorrect or incomplete information, return, report, books or other documents], he shall be liable to [a penalty [which shall not be less than one lakh rupees but  which  may  extend  to  one  lakh  rupees  for  each  day  during  which  such failure continues subject to a maximum of one crore rupees 

(b)  to file any return or furnish any information, books or other documents within the time specified therefor in the regulations, fails to file return or furnish the same within the time specified  therefor  in  the  regulations [or  who  furnishes  or  files  false,  incorrect  or incomplete information, return, report, books or other documents, he shall be liable to penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees.

(c)  to maintain books of account or records, fails to maintain the same, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees

Section 15 G: Penalty for insider trading-

If an Insider deals in company’s securities on the basis of UPSI, communicates to or procures from any person, UPSI, he sahll be liable to a penalty which shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher

Section 15HB: Penalty for contravention where no separate penalty has been provided-  

Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one crore rupee