Informal Guidance by SEBI on 'Disclosures under PIT' and 'Value of Securities Traded'

“SEBI (Prohibition of Insider Trading) Regulations, 2015, vide Regulation 7 require every promoter, key managerial personnel and director of the company to disclose any 'acquisition-or-disposal-of securities' within two trading days of the transaction if the value of the securities traded exceeds Rs.10 Lakhs in a calendar quarter or any other value as may be prescribed by the company and in turn he Company is required to disclose the same to the Stock Exchanges within two trading days of receipt of the disclosure or from becoming aware of such information.”

? In the recent Informal Guidance dated April 28, 2017, SEBI has expressed its views with regard to the disclosure requirements whereby it has stated that any transaction exceeding the threshold limit of Rs.10 lakhs has to be disclosed by the concerned persons irrespective of the mode of acquisition or disposal. SEBI has also pointed out that PIT Regulations are primarily aimed at preventing abuse by trading when in possession of Unpublished Price Sensitive Information. So, any kind of willful trading is required to be disclosed by the Insiders if it goes beyond the threshold limit.

The Insider Trading Regulations specifically include the term ‘dealing’ in the definition of ‘trading’ with a clear intent to extend the mandate of the Insider Trading Regulations to activities which are strictly not buying, selling or subscribing.

There are number of case laws in which SEBI has held that the transfer without the payment of any consideration, or in pursuance to a gift deed, or where no net benefit was accrued by the transferor would not allow any exemption from the duty to disclose under the relevant insider trading regulations.

In light of the above, even transaction which do not entail payment of consideration, such as gift come within the ambit of the term 'trading' as under the Insider Trading Regulations.

However, in cases where a person being allotted shares has no role in the transaction and the relevant transaction/information is already out in the public domain. In such cases a separate disclosure is not required. For e.g. Issue of bonus shares or shares received pursuant to a scheme of amalgamation/merger etc.

? SEBI has further stated that the term “value of securities traded” is to be interpreted as the prevailing market value of securities on the day they were acquired or disposed. Thus, the said value should be used for the purpose of calculation of threshold value beyond which disclosure is required in the prescribed form.