Decoding UPSI- SEBI Insider Trading Compliance

SEBI as part of its regulations on Prohibition of Insider Trading has asked companies to maintain digital database for Unpublished Price Sensitive Information (UPSI) sharing and other information about connected persons and Designated Persons effective Apr 1, 2019.  SEBI (Prohibition of Insider Trading) Regulations, 2015 defines UPSI as:

Any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, originally including but not restricted to, information relating to the following:

  1. Financial results
  2. Dividends
  3. Change in capital structure
  4. Merger, de-merger, acquisition, delisting, disposal or expansion of business and such other transaction
  5. Changes in key managerial positions
  6. All material events that required to be disclosed as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 may not necessarily be UPSI and hence have been omitted from the list of information/event to be considered UPSI

Generally available information means the information, which are available in public domain and can be accessed by public at large.

Based on above, there are two type of information which constitute UPSI:

  1. Material Information: Every listed company has to disclose event or information, which is material in nature as per the pre-defined Material Information Policy finalized by the company. Such information is normally related to executing large contract, obtaining regulatory license, launch of civil, regulatory or criminal action. SEBI LODR Regulation also lists certain deemed material information / events, which has to be mandatorily disclosed. Since all the deemed material information may not be UPSI, hence the company official to determine which of the deemed information is possibly material information bases it on prudential call.
  2. Financial Information: All financial statements are definitely considered as UPSI as they are very likely to have impact on the share price of securities.

Indicative list of UPSI :

  1. Financial Information
  2. Sales information
  3. Major business expansion
  4. Expense information
  5. EBIDTA & Profit
  6. Financials of group companies
  7. Business projections
  8. Corporate action – Buy-back, ESOP, Split, rights, Bonus etc
  9. Business write-off
  10. Stressed assets, NPA etc
  11. Employees cost
  12. Promoters compensation & Incentive

Possible departments & positions in possession of UPSI

Since many departments, functions support the business performance & reporting there are many departments & positions that hold possible UPSI. Board Members & Company Secretaries should be vigilant to have this list up-to-date to avoid any possible non-compliance:

  1. Finance Department
  2. Internal Audit & Compliance
  3. Investor Relations
  4. Corporate Secretarial
  5. Strategy
  6. Chairman, CEO, MD, Executive Directors, CFO, Senior leadership
  7. Board Members
  8. Auditors
  9. Internal Auditors
  10. Secretarial Auditors
  11. Legal Advisors
  12. Strategy Consultants
  13. Investment Bank
  14. Rating Agency
  15. Banks
  16. Promoters family

SEBI (Prohibition of Insider Trading) Regulations, 2015.

Applicability of SEBI (Prohibition of Insider Trading) Regulation is fairly vast and it is mandatory for all of the businesses those are holding Unpublished Price Sensitive Information (UPSI) for any listed company is required to maintain digital database to comply with Insider Trading Regulations. While as per SEBI regulations the applicability of provision is for :

  • All Listed Companies
  • All Intermediaries registered with SEBI under section 12 of SEBI Act
  • Fiduciaries as per SEBI (Prohibition of Insider Trading) Regulations 2015

The list below gives categories to whom regulation is applicable:

  • Listed Companies
  • Banks
  • Investment Banks
  • Merchant Banks
  • NBFCs
  • Rating Agencies
  • Audit firms
  • Practicing Company Secretaries
  • Mutual Funds
  • Insurance Companies
  • Law Firms
  • Consultants

So if your listed client is in any of the above category its really must for you to ensure compliance with SEBI Insider Trading Regulations before you issue your Compliance Certificate.

SEBI Insider Trading Regulations

As per new amendment, SEBI has made additional compliances as below effective Apr 1, 2019:

  • All listed company and connected persons as defined under the regulation are required to maintain a structured digital database with adequate internal controls, containing name of person with whom UPSI is shared and nature of UPSI.
  • While sharing UPSI, listed company / intermediaries should serve a notice on, or sign a confidentiality/ non-disclosure agreement with, person with whom UPSI is shared, informing him/her that he/she has to ensure compliance of PIT Amendment Regulations while in possession of UPSI shared with him/her.
  • Maintaining a lists of all employees and other persons with whom unpublished price sensitive information is shared and confidentiality agreements shall be signed or notice shall be served to all such employees and persons