Securities and Exchange Board of India

(PROHIBITION OF INSIDER TRADING)

Amendment Regulation, 2018
A smashing climax to the year…

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

 BACKGROUND BACKGROUND

In 2017, SEBI constituted the Committee on Fair Market Conduct

(FMC Committee) under the chairmanship of
BACKGROUND
Mr. T. K. Viswanathan (Formerly Union Law Secretary &
Secretary General Lok Sabha) to, amongst other things, identify
opportunities to improve the PIT Regulations.

The committee has submitted its report to SEBI on August 08,

2018 wherein it has recommended amendments to SEBI
(Prohibition of Insider Trading) Regulations, 2015 and other
acts.

Based on the report of FMC Committee, SEBI introduced the SEBI

(Prohibition of Insider Trading) Amendment Regulations, 2018 on
31st December, 2018. The PIT Amendment Regulations have
incorporated almost all of the recommendations made by the
FMC Committee relating to the legal framework, as well as
compliances.

The changes will become effective from April 1, 2019.

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

 COVERAGE
COVERAGE

01 Applicability of the PIT Amendment Regulation

02 Changed provisions under the Amendment Regulation

03 Amendments in Schedule B & Introduction of Schedule C

04 Implications and compliances by Listed Company

05 Implications and compliances by Intermediaries & Fiduciaries

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

Applicability of the PIT Amendment Regulation
COVERAGE

1
Listed Companies and
LISTED COMPANY
Companies Proposed To Be Listed

Merchant Bankers, Underwriters,

Bankers to an issue, Portfolio
2 Managers, Debenture Trustees,
INTERMEDIARIES Registrar and Share Transfer
Agent, Stock broker and Sub
broker

Professional firms such as

auditors, accountancy firms, law
3 firms, analysts, banks, insolvency
FIDUCIARIES professional entities, consultant,
etc. assisting or advising listed
companies.

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

NEW TERMINOLOGIES DEFINED

‘Compliance Officer’ means any senior officer, who is financially literate.

1 1 Reg. 2 (1) (c) ‘Financially Literate’ means a person who has the ability to read and
understand basic financial statements i.e. balance sheet, profit and loss
Compliance Officer
account and statement of cash flow.
As per SEBI (PIT) Amendment Regulation, 2018

‘Proposed to be listed’ shall include securities of an unlisted company:

21 (i) If such unlisted company has filed offer documents with SEBI, SE or
Reg. 2 (1) (hb) ROC in connection with listing; or
Proposed to be listed (ii) If such unlisted company is getting listed pursuant to any merger or
amalgamation and has filed a copy of such scheme of merger or
amalgamation under the Companies Act, 2013
As per SEBI (PIT) Amendment Regulation, 2018

3 1 Reg. 2 (1) (ha) ‘Promoter Group’ shall have the meaning assigned to it under the
Securities and Exchange Board of India (Issue of Capital and Disclosure
Promoter Group
Requirements) Regulations, 2018 or any modification thereof;
As per SEBI (PIT) Amendment Regulation, 2019

The information relating to material events in accordance with the

14 Reg. 2 (1) (n) listing agreement may or may not be price sensitive. Considering the
Unpublished Price fact that the definition of UPSI is an inclusive one, there is no reason to
Sensitive Information mandatorily include material events in the definition of UPSI.
As per SEBI (PIT) Amendment Regulation, 2018

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

POLICY FOR LEGITIMATE PURPOSES

1
1
APPLICABLE Listed Companies

2 A policy for determination of legitimate purposes shall be made as a part

MEANING of “Codes of Fair Disclosure and Conduct” by Board of Directors

‘Legitimate purpose’ include sharing of UPSI by an insider with partners,

3 collaborators, lenders, customers, suppliers, merchant bankers, legal
SPECIFICATION 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 Any person in receipt of UPSI pursuant to legitimate purpose shall be

INSIDER considered an ‘insider’ and due notice shall be given to such persons to
maintain confidentiality of such UPSI in compliance with these regulations.

This amendment will give freedom to the listed company while at same time shall ensure responsibility, since the
directors would be required to justify the policy / definition to decide what may or may not be ‘legitimate purposes’
based on its business-related needs.

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

STRUCTURED DIGITAL DATABASE

1
1
APPLICABLE Listed Companies

2 The Board of Directors shall ensure that a structured digital database is

MEANING maintained of the persons with whom the UPSI is shared.

3 The name of the persons or entities as the case may be with whom the
SPECIFICATION UPSI is shared shall be maintained along with the Permanent Account
Number (PAN).

4
ALTERNATIVE If the PAN is not available, any other identifier as authorised by law shall be
maintained.

6 Such database shall be maintained with adequate internal controls and

INTERNAL checks such as time stamping and audit trails to ensure non-tampering of
CONTROL the database.

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

CODE OF CONDUCT

 Listed Company , Person Responsible - CEO/MD with the approval of the

1
1 Board
1  Intermediary, Person Responsible – CEO/MD with the approval of the
APPLICABLE
Board/Head of organization [New Provision]
 Fiduciary, Person Responsible – Head of organization/Bard of Directors
[New Provision]
2
MEANING Formulate a code of conduct to regulate, monitor and report trading by its
designated persons and its immediate relatives (Earlier – employees and
connected persons)

3 SCHEDULE  Listed Company – Schedule B

APPLICABLE  Intermediary– Schedule C [New Provision]
 Fiduciary – Schedule C [New Provision]

4 Specify the designated persons to be covered by the Code of conduct and the
SPECIFICATION access they would provide to UPSI

 Employees – on basis of functional roles and access to UPSI

 Employees of material subsidiaries
5 DESIGNATED  Promoters – Listed Company, Individual Promoters/Investment Companies
PERSONS TO – Intermediaries / Fiduciaries
INCLUDE  CEO and employees upto two levels below CEO
 Any support staff / IT staff / secretarial staff

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

INSTITUTIONAL MECHANISM FOR PREVENTION
OF INSIDER TRADING

1  Listed Company
APPLICABLE  Intermediaries
 Fiduciaries

2 Adequate and effective system of internal controls to ensure compliance

MEANING with the requirements

 Employees having access to UPSI – Designated employees

 Maintain confidentiality of UPSI
3 SPECIFICATION  Restrictions on communication or procurement of UPSI
- INTERNAL  List of employees be maintained & confidentiality agreement be signed
CONTROL  All relevant requirements be complied
 Periodic process review to evaluate effectiveness of internal control
4
PERSON Listed Company – Board of Directors
RESPONSIBLE Intermediaries or Fiduciaries – Head of the organization

Listed Company – Audit Committee

5 Intermediaries or Fiduciaries – Other Analogous Body
REVIEW At least once in a financial year

 Every Listed Co. to formulate written policies, approved by board

 For inquiry in case of leak of UPSI or suspected leak of UPSI
6 WHISTLE
 The BOD shall initiate appropriate inquiries on becoming aware
BLOWER  Inform SEBI of such leaks, inquiries and results of such inquiries
POLICY  Make employees aware of policy to enable reporting of instances;
 Intermediaries/fiduciaries to co-operate with listed company.
Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group
DEFENCES TO INSIDER TRADING

Trading when in possession of UPSI, shall be accepted under following transactions:

1
1 OFF –
Off-market trades between insiders with the same UPSI (Earlier promoter)
MARKET Reporting: Insider to Company – 2 WD, Company to Stock Exchange – 2TD
TRADE
2 BLOCK DEAL
Trades executed on the block deal window mechanism between persons who
WINDOW
possess the same UPSI
MECHANISM
3 STATUTORY Transaction undertaken pursuant to a statutory or regulatory obligation to
OBLIGATION carry out a bona fide transaction

4 EXERCISE Transaction undertaken pursuant to the exercise of stock options at a

OF ESOP pre-determined exercise price

5 APPROVED Pre-clearance of trades shall not be required for a trade executed as per an
TRADING approved trading plan
PLAN

6 NORMS OF Trading window norms and restrictions on contra trade shall not apply for
CONTRA trades carried out as per approved trading plan
TRADE
Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group
DISCLOSURE OF INSIDER TRADING

Every promoter, member of promoter group, KMP and

1 1 Reg. 7 (1) (a)
director of every listed company shall disclose his holding of
securities to company within 30 days of these regulation
Initial Disclosure taking effect.
Reg 7(1)(a) – SEBI (PIT) Amendment Reg, 2019

Every person on appointment as KMP or director or upon

becoming promoter or member of promoter group shall
21 Reg. 7 (1) (b) disclose his holding of securities to company on date of
Initial Disclosure appointment or on becoming promoter or member of
promoter group, or within 7 days of appointment or becoming
promoter or member of promoter group.
Reg 7(1)(b) – SEBI (PIT) Amendment Reg, 2019

3 1 Reg. 7 (2) (a)

Continual Disclosure
Every promoter, designated person and director shall disclose
the no. of shares acquired or disposed of within 2 trading days
of transaction if value in any calendar quarter exceeds 10 lakh
rupees or as specified
Reg 7(2)(a) – SEBI (PIT) Amendment Reg, 2018

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

AMENDMENTS IN SCHEDULE B AND
INTRODUCTION OF SCHEDULE C
Sr. Particulars SCHEDULE B SCHEDULE C
No. (For Listed Companies) (For Intermediaries & Fiduciaries)
Heading Minimum Standards for Code of Minimum Standards for Code of Conduct for
Conduct for Listed Companies to Market Intermediaries and fiduciaries to
Regulate, Monitor and Report Trading Regulate, Monitor and Report Trading by
by Designated Persons Designated Persons
1. Reporting by At least once a year Report to BOD / Head of Organisation (HOO)
compliance officer (or Committee constituted in this regard) at
least once a year.
2. Applicability of the To designated persons and their To designated persons and their immediate
Code immediate relatives (Earlier employees relatives
and connected persons)
3. Trading window  Trading restriction period - from Trading by designated persons shall be
end of every quarter till 48 hours subject to pre- clearance by the compliance
after the declaration of financial officer(s), if the value of the proposed trades
results. is above such thresholds as the board of
 Gap between clearance of accounts directors or heads(s) of the organisation may
by Audit Committee and BOD – to stipulate.
be narrow, preferably same day
4. Maintenance of The provision is omitted The compliance officer to maintain a list of
restricted / grey such securities as a “restricted list” which
list shall be used as base for pre- clearance
5. Contra – trade Not applicable for trades pursuant to Inserted same provision as applicable to
restriction ESOP listed companies
Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group
AMENDMENTS IN SCHEDULE B AND
INTRODUCTION OF SCHEDULE C

Sr. Particulars SCHEDULE B SCHEDULE C

No. (For Listed Companies) (For Intermediaries & Fiduciaries)
6. Formats & No major change in the provisions  The code shall stipulate formats for pre-
Disciplinary actions clearance, reporting of trades executed,
reporting of decisions not to trade after
securing pre-clearance, and for reporting
level of holdings in securities
 Also stipulate disciplinary actions and in
case of violation, inform SEBI
7. Disclosure of close Designated persons shall disclose name, educational institute and PAN number or
personal relationships equivalent identification of the following to the company / intermediary / fiduciary on
and material financial annual basis and when the information changes:
relationships (New  Immediate relatives
provision – Inserted in  persons with whom such designated person share a material financial relationship
Schedule B & C)  Phone / mobile /cell numbers
Material Financial Relationship: Include – a relationship where one person is a
recipient of any kind of payment during the preceding 12 months equivalent to at
least 25% of such payer’s annual income; Excludes - payment based on arm’s length
transactions
8. Crossing the Wall Listed entities / Intermediaries / Fiduciaries shall have a process for how and when
(New provision – people are brought ‘inside’ on sensitive transactions. Individuals should be made
Inserted in Schedule B aware of the duties and responsibilities attached to the receipt of Inside Information,
& C) and the liability that attaches to misuse or unwarranted use of such information.

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

COMPLIANCES FOR LISTED COMPANY

Policy for the determination of legitimate purposes as a part of codes of conduct.

1 Person Responsible - Board of Director

System to maintain a list of recipients of UPSI for legitimate purpose and send
2 notices to such persons to maintain confidentiality.

Maintaining a digital database containing the names of such persons/entities

3 along with PAN or other legal identifiers. Person Responsible - Board of Directors

Amending the existing code of conduct in line with schedule B.

4 Person Responsible - CEO/MD with the approval of the board

Put in place an adequate and effective system of internal controls to ensure

5 compliance. Person Responsible - Board of Director

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

COMPLIANCES BY INTERMEDIARIES & FIDUCIARIES

Framing and aligning the code of conduct in line with

Schedule C.
Person Responsible - CEO/MD with the approval of the
board

COMPLIANCES
FOR
INTERMEDIARIES
& FIDUCIARIES

Put in place an adequate and effective system of internal

controls to ensure compliance.
Person Responsible - head of organization in case of
2 market intermediaries to ensure that the same is complied
by CEO/MD

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

OUR INSIGHT

Considering the dynamic nature of the securities

market environment, a review of the current
regulations and regulatory measures, assumes utmost
importance in order to effectively discharge the
objectives of SEBI.

As it is with all regulatory changes, the PIT Amendment

Regulations are also likely to cause some upheaval,
specifically in respect of the compliance obligations
that it seeks to cast on listed companies and
intermediaries.

The recommended changes mainly seem to provide

clarification and fixation of roles/ responsibilities/
mechanism for effective implementation of the
requirements of the Regulations. It shall be interesting
to see whether these amended provisions help the
corporates to curb the insider trading practises or
proves to be merely a compliance burden.

Pantomath Advisors LLP – A Group entity of Pantomath Advisory Services Group

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Website:
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Disclaimer
All data and information is provided for informational purposes only and is not intended for any factual use. It should not be considered as binding / statutory provisions. Neither
Pantomath Capital Advisors nor any of its group company, directors, or employs shall be liable for any of the data or content provided for any actions taken in reliance thereon.