SEBI proposes amending norms on price-sensitive information to curb insider trading
The Securities and Exchange Board of India (SEBI), the regulatory authority overseeing the capital market, has put forth proposals to amend insider trading regulations in response to the inadequate reporting of material events by listed companies. SEBI’s examination, conducted jointly with stock exchanges, revealed that only 8 percent of instances saw listed companies correctly categorise unpublished price-sensitive information (UPSI), indicating a failure rate of 92 percent.
This failure on the part of listed companies has posed a challenge to SEBI’s efforts to combat insider trading practices effectively. Consequently, SEBI released a consultation paper on May 18th with the intention of amending the definition of UPSI outlined in the SEBI (Prohibition of Insider Trading) Regulations of 2015. The proposed amendments aim to enhance clarity and promote uniform compliance by linking UPSI to “material events” as defined in Regulation 30 of the SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations of 2015.
The existing definition of UPSI originated from a report submitted by the Committee on Fair Market Conduct in August 2017, which recommended amendments to various SEBI regulations including the SEBI Act of 1992, SEBI (Prohibition of Insider Trading) Regulations of 2015, and Unfair Trade Practices Relating to Securities Markets) and SEBI (Prohibition of Fraudulent Regulations of 2003. The committee noted that the inclusive definition of UPSI encompassed “material events in accordance with the listing agreement” as UPSI. However, they found the disclosure norms stipulated under the LODR regulations to be superfluous.
Regulation 68 of the LODR Regulations defines “material events” as events or information that are material, price-sensitive, and impact the performance or operation of the listed entity, mandating prompt notification to the stock exchange(s). SEBI’s consultation paper noted that not all material events requiring disclosure as per Regulation 68 would necessarily qualify as UPSI under the insider trading regulations. Accordingly, the committee recommended the removal of the explicit inclusion of “material events in accordance with the listing agreement” from the definition of UPSI.
Despite the amendment, listed entities continued to struggle with the accurate categorization of UPSI. In collaboration with stock exchanges, SEBI analysed approximately 1,100 press releases and found that in 227 instances, the information disclosed triggered a price movement of 2 percent, yet only 18 instances were appropriately categorised as UPSI. This indicates that listed companies accurately classified UPSI merely 8 percent of the time.
The analysis also revealed that companies primarily categorised items explicitly mentioned in Regulation 2(1)(n) of the insider trading regulations as UPSI. Feedback from the market suggested that this approach was considered a “uniform practice” due to its explicit mention in the regulations.
