SEBI eases insider trading norms, adds flexibility to trading plans

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SEBI eases insider trading norms, adds flexibility to trading plans

In a significant move aimed at providing more flexibility to insiders executing trading plans, the Securities and Exchange Board of India (SEBI) has amended its insider trading regulations. These new norms, which will take effect three months from now, include a reduction of the cool-off period for trading plans from six months to 120 days and the introduction of a 20% price range for buying or selling shares.

Key Changes in Insider Trading Norms

Reduction of Cool-Off Period:

Under the previous Prohibition of Insider Trading (PIT) Regulations, an insider was required to observe a cool-off period of six months after the public disclosure of their trading plan before they could commence trading. This period has now been significantly reduced to 120 days. This amendment is expected to provide insiders with greater flexibility and agility in executing their trades, while still maintaining a robust compliance framework.

Introduction of 20% Price Range:

Another major amendment introduced by SEBI is the stipulation of a 20% price range for trades. Sumit Kochar, Managing Partner at Dolce Vita Legal Advisors, explains, “Previously, insiders had to specify either the investment value or the number of securities to be purchased or sold. With the new regulations, they must also set a price limit for trades within a 20% range.” This change is designed to add a layer of predictability and control to trading plans, mitigating risks associated with price volatility.

Compliance and Conduct

According to the PIT Regulations, insiders can trade in the company’s securities only if their trading plan is approved by the compliance officer. This ensures that the trading plan is devised before the insider possesses any unpublished price-sensitive information (UPSI).

Additionally, the listed entity’s code of conduct must outline a period of not less than six months during which a designated person, permitted to trade, is prohibited from executing a contra trade. A contra trade involves executing opposite trades, such as buying and selling the same security within a single day. Kochar notes, “Previously, a contra trade was permissible if conducted in accordance with the Trading Plan. However, this six-month restriction now applies regardless of the existence of an approved trading plan.”

Conclusion

SEBI’s amendments to insider trading norms reflect an effort to balance flexibility for insiders with the need to maintain market integrity and investor confidence. By reducing the cool-off period and introducing a price range for trades, SEBI aims to facilitate more efficient and controlled trading activities. These changes are a step forward in modernizing the regulatory framework to keep pace with the evolving market dynamics.

As these new norms take effect, insiders and compliance officers must stay informed and ensure their trading activities align with the updated regulations.

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