Insider Trading Compliance & Management | Everything you need to know

SEBI has brought about a wide range of regulatory amendments in recent years for the Prevention of Insider Trading (PIT). As we all are aware, insider trading is considered a serious offense as it breaches the interest of the stakeholders in a free and fair capital market.

Despite its severe consequences, violations of insider trading norms and leakage of Unpublished Price Sensitive Information (UPSI) have been increasing in the past. To regulate the same, SEBI introduced important changes wef 17 July 2020, for easy identification of market manipulations and to ensure fair and level playing in the Indian Capital Market.

Summarized overview of PIT Regulations and Amendments

1. Each Listed company must maintain a structured digital database of price-sensitive information and the persons with whom it has been shared.
2. It must also maintain a list of Designated Persons (DP), that is, all the employees and individuals who have the access to UPSI or possess price-sensitive information.
3. The said database is supposed to be maintained by the board of directors or head(s) internally, i.e., it cannot be outsourced.
4. There should be adequate internal control checks such as time stamping and audit trails to ensure non-tampering of the database.
5. The database must be preserved for a period of a minimum of 8 years after the completion of such transaction, or in the case of receipt of any information from SEBI for the purpose of investigation or enforcement proceedings.
6. Any insider trading done while possessing the UPSI shall be deemed motivated by the UPSI.
7. The compliance officer shall determine the persons who possess access to UPSI at the time of maintaining the structured digital database.
8. The trading records of Insiders and the immediate relatives of the Insiders must be regulated, monitored, and reported by the Company.
9. Log reports of all the Designated Persons shall be maintained along with signed confidentiality agreements.
10. The Designated Person shall seek pre-clearance on trade from the compliance officer for trading over the prescribed limit stated by the organization under the insider code of conduct.
11. Any trading activity done by the insider shall be tracked and the records shall be regulated by the organization. All the related non-compliances thereby, such as exceeding the prescribed trading limit in the absence of pre-clearance by CO, closure of trading insider window, and/or contra trade shall be reported to SEBI and the Board along with the cause noticed to be given to the DP for non-compliance.
12. To assess the effectiveness of internal controls, a periodic process of review shall be made by the audit committee and the CO.

Solution for Compliance of Structured Digital Database

Insider trading compliance management requires careful maintenance of the Structured Digital Database with appropriated information of the DP. To make the compliance process easy, an insider trading compliance tool comes into the picture by providing a range of features, some of which have been mentioned below:

1. The tool shall provide the following information :

• Name of the person or entity with whom the UPSI has been shared.
• Permanent Account Number (PAN) of such person or any other identifier authorized by law.
• Nature of unpublished price-sensitive information.
• Names of such person who has shared the information.
• Names of such persons with whom information is shared.
• Permanent Account Number (PAN) of such person or any other identifier authorized by law where Permanent Account Number is not available.

1. Audit trails and security logs to facilitate secure access to insider data.
2. Centralized solution with employee database, such as declarations, holdings, relations, education
3. Pre-clearance approvals along with a systematic workflow for managing trade requests.
4. Escalation matrix like auto alerts, reminders, and notices to stay updated with non-compliance events.
5. Auto schedules such as email alerts, reminders, and notices to keep track of periodic and continual declarations.
6. Email Approvals from the compliance officer to facilitate complete trade requests of the employees.
7. Configurable Templates for emailing and broadcast email messaging to send notice and declaration alerts.

Though the above requirement of a structured digital database was introduced over 2 years ago, it seems that many listed companies are still not complying with it properly. Keeping the required information in excel or word or a manual book is not sufficient compliance. Moreover, wef August 4, 2022, it is mandatory for the Compliance Officer of a Listed Company to file a Compliance Certificate regarding the maintenance of such database.  Any non-compliance shall result in a penalty which shall not be less than Rs. 10 lacs but which may extend to Rs. 25 cr or 3 times the amount of profits made out of insider trading, whichever is higher. (Section 15G of SEBI Act, 1992).

In view of the above, immediate compliance with the said requirement is the need of the hour. For more details or assistance, contact us at +91 7303393220 or email us at contactus@webtel.co.in