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SEBI rules on Insider Trading 2019: Rise in Cost of Compliance

by PracticeLeague

India’s equity market has been lately hit by a new surge of insider trading, fraudulent trade practices and stock price rigging, and more than 30 cases of insider trading were reported and investigated by market regulator SEBI in 2016-2017 alone.

The growing incidents of insider trading and alleged leakage of Unpublished Price Sensitive Information (UPSI) has impacted the markets negatively with not only damaging stock prices but also robbing the investors of receiving the full potential and value of their investments. With the regulations against Insider Trading already having a robust framework, regulator SEBI has always been on the forefront of evolving with the market scenario and had recently issued the (Prohibition of Insider Trading) Amendment Regulations, 2018 on 31st December, 2018 with the amendments taking effect from 1st April, 2019, i.e. the effective date.

These instrumental amendments were suggested by the Expert Committee chaired by Dr. T.K. Vishwanathanto inter alia the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations).

According to the new Amendments in SEBI 2019 introduced, companies must be compliant to various regulations which were not applicable before, such as organisations need to have in place a policy and procedure for conducting inquiry in incidents of a leakage of UPSI. The updated Insider Trading Regulations 2019 ‘prohibits an insider from trading in securities while in possession of UPSI’.
Another important amendment in SEBI Rules 2019 made is Regulation 3 which prohibits the communicating, access and procurement of unpublished price sensitive information (UPSI). However, communication done for ‘legitimate purpose’ is permitted. Hence, all communication has to be digitally stored.

Apart from the above amendments, several other requirements have been included to be complied with the amended PIT regulations. It ranges from information sharing to creating a digital database of persons having UPSI to framing Code of conduct by other parties/firms/consultants who have access to/ handling unpublished price sensitive information of a company.

Introducing these amendments has been hailed as a progressive and innovative step, especially in times of rising fraudulent breaches of sensitive company information, which is hurting both the organisations and the common investors. And while companies are rushing to comply with these regulations, experts suggest that this is going to increase the cost of compliance for the organisations while also have a commanding impact on legitimate corporate communications.

The new amendments are bringing forth a new wave of upheaval for companies in respect to meeting with increasing compliance obligations and bringing back the locus on individual rights and privacy. This approach adopted by regulators to contain the incidents of insider trading will put an extra burden on the companies and intermediaries to create a robust framework for designated persons to furnish details of material financial relationships.

Adhering to the new amendments and keeping up with the cost of compliances requires a robust Insider Trading software for agile organisations to transform and streamline their Insider Trading process. PracticeLeague Insider Trading Platform is an integrated and sophisticated off-the-shelf solution that has evolved extensively with market feedback and adopted to the fast-changing dynamics of the market demand to become a fluidic, feature-rich platform.

The software allows compliance officers to manage a central digital database of all connected persons including employees, promoters, directors, key personnel and other connected persons while providing reminders and communicating with all connected persons through the system to enforce compliance with the Code of Conduct.

The platform enables Key Management Personnel to unveil the securities to grey list based on the engaging party, target company or other assignments through which firm is likely to receive the Unpublished Price Sensitive Information. Based on the information submitted by the employees, compliance officer can set-up, manage the restricted security database for which trading is prohibited. Audit trail of all the activities can be maintained on the robust system.

Besides, compliance officers can ensure digital entry of initial and continual disclosures of all connected members and provide the members with an electronic platform to seek pre-clearance of trade to permission to sell. With the trade list scrubbing, you can flag all unapproved or non-compliant trades. Companies can also publish their trading calendar on the system for complete transparency and automation.

Apart from being a VAPT compliant software, PracticeLeague Insider Trading software provides with archiving of emails containing UPSI to ensure compliance with the new regulations. The system is feature-rich with compliance officers being able to manage multiple legal entities with hierarchical and role-based access for secure information sharing.

PracticeLeague Insider Trading Software is an innovative and integrated platform which allows compliance officers to generate comprehensive MIS reports based on information received and to flag non-compliances and default. It can also be integrated with your core systems including ERP, Single Sign-on, 2-factor authentication, and other systems for ease of use with complete security.

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