SEBI Insider Trading Compliance – This is no more an option

Insider trading is the unfair advantage that a company insider with access to confidential, non-public information has while trading on company securities. Thus, such individuals or persons are allowed to trade during restricted periods called trading windows. In India, SEBI overlooks the implementation of anti-insider trading practices. Applicability of SEBI (Prohibition of Insider Trading)
Regulation is fairly vast and it is applicable to listed companies, banks, investment banks, NBFCs, Auditors, Rating Agencies, Stock Exchanges, Clearing House, Registrars & Transfer Agents, mutual funds, insurance companies, investment companies, Internal Auditors, Practicing Company Secretaries.

In spite of detailed regulations in place, several lapses do occur. For example, recently IT giant Infosys imposed a penalty on Kiran Mazumdar Shaw, an independent Director, for inadvertently selling shares during open trading window period without obtaining prior permission. Though later came to light that the trade was conducted by the portfolio manager, without the knowledge of Ms. Shaw. Logically portfolio manager should have known the regulation or should have been told about the regulation.

However, ‘Ignorance of the law is no excuse.’ Thus, it is prudent to have in place a foolproof online insider trading software that would immediately red flag potential instances of violation. A technology solution would enable the company secretaries and compliance officers to monitor, follow and track all the compliances and new regulations related to insider trading. Be it trading on
your own company shares or trading on restricted shares, an effective, real-time Insider Trading Software would help manage all that. Compliance Officers & Company Secretaries are leading the transformation in ensuring that the Company, the Board, KMPs are the Designated Persons are not penalized or fined. Awareness, as well as execution, is critical in ensuring compliance.
The Securities and Exchange Board of India (SEBI) issued new notifications on December 31, including the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018 (PIT Amendment Regulations). The PIT Amendment Regulations come into force on April 1, 2019, and will have drastically change the manner of market trading by listed companies and intermediaries within the
regulatory framework.

‘The board of directors shall ensure that a structured digital database is maintained containing the names of such persons or entities as the case may be with whom information is shared under this regulation along with the Permanent Account Number or any other identifier authorized by law where Permanent Account Number is not available. Such databases shall be maintained with adequate internal controls and checks such as time stamping and audit trails to ensure non- tampering of the database’ – SEBI
SEBI has mandated the use of digital software to monitor and track compliance with insider trading
rules as follows:

  • All listed company and connected persons as defined under the regulation are required to maintain
    a structured digital database with adequate internal controls, containing the name of the person
    with whom UPSI is shared and nature of Unpublished price sensitive information (UPSI).
  • While sharing UPSI, listed company/intermediaries should serve a notice on, or sign a
    confidentiality/ non-disclosure agreement with, a person with whom UPSI is shared, informing
    him/her that he/she has to ensure compliance of Prohibition of Insider Trading Amendment
    Regulations while in possession of UPSI shared with him/her.
  • Maintaining a list 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
  • Mandatory periodic shareholding disclosures, solely, by designated employees

An insider trading software is a useful strategic, necessary and compliance tool that would help
capture all of the above information and more in a repository and track violations real time. In other
words, it functions as a continuous surveillance mechanism.

Insider trading compliance violation is a serious violation of the SEBI securities trading norms. Even
unintentional violations can cause the imposition of monetary fines or huge penalties, bad
reputation, loss of branch and even bring about disrepute. Additionally, it would cause share prices
to tumble as many investors would not get confidence and comfort if the company`s compliance
mechanism is a week. Just a few days back, there was news that SEBI is probing potential violations
of disclosure norms, including insider-trading rules, at a leading bank, which is alleged to have
selectively revealed information to the RBI. This news has already hit the share prices of said bank.
By investing in an insider trading software for one’s corporate compliance, one can avoid getting on
the wrong side of the law.

SEBI has taken a huge step towards the implementation of a transparent trading mechanism and
absolute compliance with insider trading rules. The SEBI rules requiring a digital insider trading
database software with adequate internal controls, a tamper-proof time stamping mechanism, and
complete audit trails is a great start to the new financial year on the securities trading compliance
front.

Volody is a leading enterprise software company has ready software to enable companies ensuring
complete compliance with SEBI Insider Trading Compliance regulations. Please reach out to us at
connect@volody.com or call us at +918080809301

Leave a Reply

Your email address will not be published. Required fields are marked *