Context:
- Recently, the Securities and Exchange Board of India (SEBI) proposed relaxations to enable company insiders to trade in securities, who are in possession of unpublished price-sensitive information.
SEBI Proposes Easing Trading Plans for Company Insiders
Facilitating Adoption of Trading Plans: It recommended reducing the minimum cooling-off period between the disclosure and implementation of the trading plan from six months to four months.
Trading Plan Framework:
- It refers to predetermined trading initiatives that an insider can formulate to trade legally.
- Sebi prohibits insider trading but allows senior management personnel to trade in the shares of their companies under the trading plan framework, introduced in 2015.
- While formulating a trading plan, the insider has to plan for at least 18 months consisting of:
- Mandatory 6 month cool-off period.
- A minimum coverage period of 12 months before the execution of trades.
- However, trading plans are not very popular as the regulatory requirements are difficult.
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- Doing Away with the Blackout Period: A blackout period is a time when certain people are prevented from buying or selling shares in their company.
- Reducing the Minimum Coverage Period: SEBI has proposed reducing the minimum coverage period requirement to two months from twelve months.
- Personal Details Disclosure: The insider should make separate filings for the stock exchange (with personal details) and for the public (without personal details).
- Other Recommendations:
- Increase flexibility during trading plan formulation.
- Include disclosure of the trading plans to stock exchanges to be done in two days from the date of approval.
- Applicability of contra-trade provisions on trades executed under the trading plan
What is Insider Trading?
- Insider Trading: It involves trading in a public company’s stock or other securities by someone with non-public, material information about the company.
- Insider: She/He is a person who is a part of the company whose stocks they are trading.
- They may or may not possess confidential non-public knowledge regarding the firm.
- Non-Public Material Information: An information that could substantially impact an investor’s decision to buy or sell a security that has not been made available to the public.
- Preventing Insider Trading: To promote fair trading, SEBI has prohibited the firms to purchase their own shares from the secondary market.
News Source: Indian Express
November 25, 2023