Taxmann's Securities Law & Capital Markets (SLCM) | CRACKER

Chapter-wise Marks Distribution

Previous Exam Trend Analysis

Ca pi t al Mar ket I nst r u me nt s

Sec uri ti es Mar ket I nt er me di ari es

Des cri pti ve

Pr acti cal 1(b ) S EBI ( Li sti ng Obli gati o ns & Di s cl os ur e Re q ui r e me nt s) Reg ul ati o ns, 2015

1( c ) An Over vi e w of t he S EBI ( I ss ue of Ca pi t al & Di s cl os ur e Re q ui r e me nt s) Reg ul ati o ns, 2018

5 Pr acti cal

1(d ) S EBI ( Li sti ng Obli gati o ns & Di s cl os ur e Re q ui r e me nt s) Reg ul ati o ns, 2015 5 Pr acti cal

2( a ) An Over vi e w of t he S EBI ( I ss ue of Ca pi t al & Di s cl os ur e Re q ui r e me nt s) Reg ul ati o ns, 2018

4 Des cri pti ve

2(b ) S EBI ( Li sti ng Obli gati o ns & Di s cl os ur e Re q ui r e me nt s) Reg ul ati o ns, 2015 4 Des cri pti ve

2( c ) I ss ue of S weat Eq ui t y Shar es 4 Pr acti cal

4 Pr acti cal

Exam Que. No. Chapter Name

Marks Category

1(b ) S EBI ( Li sti ng Obli gati o ns & Di s cl os ur e Re q ui r e me nt s) Reg ul ati o ns, 2015 5 Pr acti cal

1( c ) S EBI ( Li sti ng Obli gati o ns & Di s cl os ur e Re q ui r e me nt s) Reg ul ati o ns, 2015 5 Pr acti cal

1(d ) I ss ue of S weat Eq ui t y Shar es 5 Pr acti cal

2( a ) An Over vi e w of t he S EBI ( I ss ue of Ca pi t al & Di s cl os ur e Re q ui r e me nt s) Reg ul ati o ns, 2018

2(b ) An Over vi e w of t he S EBI ( I ss ue of Ca pi t al & Di s cl os ur e Re q ui r e me nt s) Reg ul ati o ns, 2018

4 Des cri pti ve

4 Des cri pti ve

2( c ) Coll ecti ve I nvest me nt Sc he mes 4 Pr acti cal

2(d ) S EBI ( O mbuds ma n) Reg ul ati o ns, 2003 4 Des cri pti ve

2( e ) S EBI ( Li sti ng Obli gati o ns & Di s cl os ur e Re q

Chapter-wise Comparison with Study Material

SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 2015

1.Explain the disclosure requirements by certain persons under the SEBI (Prohibition of Insider Trading) Regulations, 2015. [June 2009 (4 Marks)]

Ans.: Disclosures by certain persons [Regulation 7] :

Initial Disclosures : Ever y pers o n o n a ppoi nt me nt as K MP or a di r ect or of t he c o mpa ny or upo n bec o m i ng a pr o mot er or me mber of pr o mot er gr o up s hall di s cl os e hi s hol di ng of s ec uri ti es of t he c o mpa ny w i t hi n 7 days of hi s a ppoi nt me nt as K MP , di r ect or or bec o m i ng a pr o mot er

Continual Disclosures :

( a ) Ever y pr o mot er, me mber of pr o mot er gr o up, desi g nat e d pers o n a nd di r ect or of e ver y c o mpa ny s hall di s cl os e t o t he c o mpa ny t he n u mber of s ec uri ti es ac q ui r e d or di s pos e d of w i t hi n 2 t r a di ng days i f t he val ue of t he s ec uri ti es t r a de d over a ny c al e ndar q uart er e xcee ds ` 10 lakhs or s uc h ot her val ue as may be s peci fie d.

(b ) On r ecei pt of a bove i nf or mati o n, t he c o mpa ny s hall noti f y t he s a me t o t he st oc k e xc ha nge w i t hi n 2 t r a di ng days of r ecei pt i nf or mati o n or f r o m bec o m i ng a war e of s uc h i nf or mati o n.

( c ) The a bove di s cl os ur es s hall be ma de i n s uc h f or m a nd s uc h ma nner as may be s peci fie d by t he S E BI f r o mti me t o ti me.

Disclosures by other connected persons:

A li st e d c o mpa ny may at i t s di s cr eti o n r e q ui r e a ny ot her c o nnect e d pers o n t o ma ke di s cl os ur es of hol di ngs a nd t r a di ng i n s ec uri ti es i n s uc h f or m a nd at s uc h f r e q ue nc y as may be det er m i ne d by t he c o mpa ny i n or der t o mo ni t or c o mpli a nce

2.Distinguish between: ‘Insider’ and ‘connected persons’ as per the SEBI (Prohibition of Insider Trading) Regulations, 2015. [Dec. 2010 (5 Marks)]

Ans.: Insider [Regulation 2(g)]: I nsi der me a ns a ny pers o n who i s:

(i ) a c o nnect e d pers o n or

11.2

(ii ) I n poss essi o n of or havi ng access t o unp ubli s he d pri ce s e nsi ti ve i nf or ma

ti o n;

Connected Person [Regulation 2(d)] : Co nnect e d pers o n me a ns -

(i ) Any pers o n who i s or has d uri ng t he 6 mo nt hs pri or t o t he c o ncer ne d act bee n ass oci at e d w i t h a c o mpa ny, di r ectl y or i ndi r ectl y, i n a ny c a paci t y i ncl udi ng by r e as o n of f r e q ue nt c o mmuni c ati o n w i t h i t s of ficers or by bei ngi n a ny c o nt r act ual, fid uci ar y or e mpl oy me nt r el ati o ns hi p or by bei ng a di r ect or, of ficer or a n e mpl oyee of t he c o mpa ny or hol ds a ny posi ti o n i ncl udi ng a pr of essi o nal or b usi ness r el ati o ns hi p bet wee n hi ms el f a nd t he c o mpa ny whet her t e mpor ar y or per ma ne nt, t hat all o ws s uc h pers o n, di r ectl y or i ndi r ectl y, access t o unp ubli s he d pri ce s e nsi ti ve i nf or mati o n or i s r e as o na bl y e x pect e d t o all o w s uc h access.

(ii ) Foll o w i ng c at e g ori es s hall be deemed to be connected persons unl ess t he c o nt r ar y i s est a bli s he d -

(

a ) An i mme di at e r el ati ve of c o nnect e d pers o ns s peci fie d i n cl a us e (i ) or

(

b ) A hol di ng c o mpa ny or ass oci at e c o mpa ny or s ubsi di ar y c o mpa ny or

(

c ) An i nt er me di ar y as s peci fie d i n Secti o n 12 of t he S E BI Act, 1992 or a n e mpl oyee or di r ect or t her e of or

(d ) An i nvest me nt c o mpa ny, t r ust ee c o mpa ny, A MC or a n e mpl oyee or di r ect or t her e of or

( e ) An of fici al of a st oc k e xc ha nge or of cl e ari ng ho us e or c or por ati o n or

(f ) A me mber of boar d of t r ust ees of a mut ual f und or a me mber of t he boar d of di r ect ors of t he A MC of a mut ual f und or i s a n e mpl oyee t her e of or

( g ) A me mber of t he boar d of di r ect ors or a n e mpl oyee, of a p ubli c fina nci al i nsti t uti o n or

(h ) An of fici al or a n e mpl oyee of a s el f- r eg ul at or y or ga ni z ati on r ec og ni s e d or

(i ) A ba nker of t he c o mpa ny or

(j ) A c o ncer n, fir m , t r ust, HUF , c o mpa ny or A OP wher ei n a di r ect or of a c o mpa ny or hi s i mme di at e r el ati ve or ba nker of t he c o mpa ny, has mor e t ha n 10 % of t he hol di ng or i nt er est

3. Write a short note on: Chinese Wall Policy [June 2011 (4 Marks)]

Ans.: A ‘ Chi nes e Wall’ me a ns a n arr a nge me nt wher e i nf or mati o n k no wn t o pers o n i n o ne part of b usi ness i s not avail a bl e di r ectl y or i ndi r ectl y t o t hos e i n a not her part of b usi ness.

To pr e ve nt t he m i s us e of c o nfi de nti al i nf or mati o n t he or ga ni z ati o n s hall a dopt a “ Chi nes e Wall Poli c y ” whi c h s e par at es t hos e ar e as of or ga ni s ati o n whi c h

r o uti nel y have access t o c o nfi de nti al i nf or mati o n, f r o m t hos e ar e as whi c h de al w i t h s al e / mar keti ng/i nvest me nt a dvi ce or ot her de part me nt s pr ovi di ng s upport s er vi ces. The e mpl oyees i n t he r es pecti ve ar e as s hall not c o mmuni c at e a ny pri ce s e nsi ti ve i nf or mati o n t o t he ot her ar e as.

4. What is meant by “unpublished price sensitive information”? What are the restrictions on communication or procurement of unpublished price sensitive information? [Dec. 2011 (4 Marks)]

Ans.: Unp ubli s he d pri ce s e nsi ti ve i nf or mati o n me a ns a ny i nf or mati o n, r el at - i ng t o a c o mpa ny or i t s s ec uri ti es, di r ectl y or i ndi r ectl y, t hat i s not ge ner all y avail a bl e a nd whi c h upo n bec o m i ng ge ner all y avail a bl e, i s li kel y t o mat eri all y aff ect t he pri ce of t he s ec uri ti es a nd or di naril y i ncl udes i nf or mati o n r el ati ng t o t he f oll o w i ng:

( a ) Fi na nci al r es ul t s

(

b ) Di vi de nds

(

c ) Cha nge i n c a pi t al st r uct ur e

(

d ) Mer gers, de- mer gers, ac q ui si ti o ns, de-li sti ngs, di s pos al s a nd e x pa nsi o n of b usi ness a nd s uc h ot her t r a ns acti o ns

(

e ) Cha nges i n K MP

(f ) Mat eri al e ve nt s i n acc or da nce w i t h t he li sti ng agr ee me nt.

Communication or procurement of unpublished price sensitive information

[Regulation 3] :

( 1) Noi nsi der s hall c o mmuni c at e, pr ovi de, or all o waccess t o a ny unp ubli s he d pri ce s e nsi ti ve i nf or mati o n, r el ati ng t o a c o mpa ny or s ec uri ti es li st e d or pr opos e d t o be li st e d, t o a ny pers o n i ncl udi ng ot her i nsi ders e xce pt wher e s uc h c o mmuni cati oni s i nf urt her a nce of l egi ti mat e p ur pos es, perf or ma nce of d uti es or di s c har ge of l e gal o bli gati o ns.

( 2) No pers o n s hall pr oc ur e f r o m or c a us e t he c o mmuni c ati o n by a ny i nsi der of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n, r el ati ng t o a c o mpa ny or s ec uri ti es li st e d or pr opos e d t o be li st e d, e xce pt i n f urt her a nce of l e gi ti mat e p ur pos es, perf or ma nce of d uti es or di s c har ge of l e gal o bli gati o ns.

( 3) The boar d of di r ect ors of a li st e d c o mpa ny s hall ma ke a poli c y f or det erm i nati o n of “l e gi ti mat e p ur pos es” as a part of “ Co des of Fai r Di s cl os ur e a nd Co nd uct” f or mul at e d under r e g ul ati o n 8.

Explanation: The t er m“l e gi ti mat e p ur pos e” s hall i ncl ude s hari ng of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n i n t he or di nar y c o urs e of b usi ness by a n i nsi der w i t h part ners, c oll a bor at ors, l e nders, c ust o mers, s uppli ers, mer c ha nt ba nkers, l e gal a dvi s ors, a udi t ors, i ns ol ve nc y pr of essi o nal s or ot her a dvi s ors or c o ns ul t a nt s, pr ovi de d t hat s uc h s hari ng has not bee n c arri e d o ut t o e va de or ci r c u mve nt t he pr o hi bi ti o ns of t hes e r e g ul ati o ns.

( 4) Any pers o ni n r ecei pt of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n p urs ua nt t o a “l e gi ti mat e p ur pos e” s hall be c o nsi der e d a n “i nsi der” f or p ur pos es of t hes e r e g ul ati o ns a nd d ue noti ce s hall be gi ve n t o s uc h pers o ns t o mai n

11.4

t ai n c o nfide nti ali t y of s uc h unp ubli s he d pri ce s e nsi ti ve i nf or mati o n i n c o mpli a nce w i t h t hes e r e g ul ati o ns.

( 5) An unp ubli s he d pri ce s e nsi ti ve i nf or mati o n may be c o mmuni c at e d, pr o - vi de d, all o we d access t o or pr oc ur e d, i n c o nnecti o n w i t h a t r a ns acti o n t hat wo ul d:

(i ) e nt ail a n o bli gati o n t o ma ke a n ope n off er under t he t a ke over r e g ul ati o ns wher e t he boar d of di r ect ors of t he li st e d c o mpa ny i s of i nf or me d opi ni o n t hat s hari ng of s uc h i nf or mati o n i s i n t he best i nt er est s of t he c o mpa ny;

(ii ) not att r act t he o bli gati o n t o ma ke a n ope n off er under t he t a ke over r e g ul ati o ns b ut wher e t he boar d of di r ect ors of t he li st e d c o mpa ny i s of i nf or me d opi ni o n t hat s hari ng of s uc h i nf or mati o n i s i n t he best i nt er est s of t he c o mpa ny a nd t he i nf or mati o n t hat c o nsti t ut e unp ubli s he d pri ce s e nsi ti ve i nf or mati o n i s di ss e m i nat e d t o be ma de ge ner all y avail a bl e at l e ast 2 t r a di ng days pri or t o t he pr opos e d t r a ns acti o n bei ng eff ect e d i n s uc h f or m as t he boar d of di r ect ors may det er m i ne t o be a de q uat e a nd f ai r t o c over all r el e va nt a nd mat eri al f act s.

(

6) The boar d of di r ect ors s hall r e q ui r e t he parti es t o e xec ut e agr ee me nt s t o c o nt r act c o nfide nti ali t y a nd no n- di s cl os ur e o bli gati o ns o n t he part of s uc h parti es a nd s uc h parti es s hall kee p i nf or mati o n s o r ecei ve d c o nfi - de nti al a nd s hall not ot her w i s e t r a de i n s ec uri ti es of t he c o mpa ny whe n i n poss essi o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n.

( 7) The boar d of di r ect ors or he a ds of t he or ga ni s ati o n of e ver y pers o n r e q ui r e d t o ha ndl e unp ubli s he d pri ce s e nsi ti ve i nf or mati o n s hall e ns ur e t hat a st r uct ur e d di gi t al dat a bas e i s mai nt ai ne d c o nt ai ni ng t he nat ur e of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n a nd t he na mes of s uc h pers o ns who have s har e d t he i nf or mati o n a nd al s o t he na mes of s uc h pers o ns w i t h who m i nf or mati o n i s s har e d under t hi s r e g ul ati o n al o ng w i t h t he Per ma ne nt Acc o unt Nu mber or a ny ot her i de nti fier a ut hori z e d by l a w wher e Per ma ne nt Acc o unt Nu mber i s not avail a bl e. Suc h dat a bas e s hall not be o ut s o ur ce d a nd s hall be mai nt ai ne di nt er nall y w i t h a de q uat e i nt er - nal c o nt r ol s a nd c hec ks s uc h as ti me st a mpi ng a nd a udi t t r ail s t o e ns ur e no n- t a mperi ng of t he dat a bas e.

( 8) The boar d of di r ect ors or he a ds of t he or ga ni s ati o n of e ver y pers o n r eq ui r e d t o ha ndl e unp ubli s he d pri ce s e nsi ti ve i nf or mati o n s hall e ns ur e t hat t he st r uct ur e d di gi t al dat a bas e i s pr es er ve d f or a peri o d of not l ess t ha n ei g ht ye ars aft er c o mpl eti o n of t he r el e va nt t r a ns acti o ns a nd i n t he e ve nt of r ecei pt of a ny i nf or mati o n f r o mt he S E BI r e gar di ng a ny i nvesti gati o n or e nf or ce me nt pr ocee di ngs, t he r el e va nt i nf or mati o n i n t he st r uct ur e d di gi t al dat a bas e s hall be pr es er ve d till t he c o mpl eti o n of s uc h pr ocee di ngs

5. What do you mean by insider trading? Enumerate the penalties which can be imposed under the SEBI Act, 1992 for insider trading?

[June 2013 (4 Marks)]

Ans.: Please refer to answer of Question No. 8.

6. Insider trading normally means trading in shares of a company by the persons who are in the management of the company or close to them on the basis of unpublished price sensitive information which they possess but others not. In the light of this, state whether the following information is price sensitive:

(i) The CEO of a company met with an accident and had been hospitalized.

(ii) Intended declaration of rights issue in near future.

(iii) RBI has increased repo rate by 25 basis points.

(iv) The company is going to have another plant at Rudrapur, Uttarakhand.

(v) The Chairman of the company has submitted his resignation to the Board under protest for selling a particular brand to another company.

[Dec.

2013 (4 Marks)]

Ans.: Unp ubli s he d pri ce s e nsi ti ve i nf or mati o n me a ns a ny i nf or mati o n, r el at - i ng t o a c o mpa ny or i t s s ec uri ti es, di r ectl y or i ndi r ectl y, t hat i s not ge ner all y avail a bl e a nd whi c h upo n bec o m i ng ge ner all y avail a bl e, i s li kel y t o mat eri all y aff ect t he pri ce of t he s ec uri ti es

I n vi e w of a bove, a ns wer t o gi ve n pr o bl e mi s as f oll o ws:

Information Price sensitive or

The C E O of a c o mp a ny met w i t h a n acci de nt a nd ha d bee n hos pi t ali z e d.

I nt e nde d decl ar ati o n of ri g ht s i ss ue i n near f ut ur e.

RBI has i ncr eas e d r e po r at e by 25 basi s poi nt s.

not

Reasons

No Tho ug h i nf or mati o n r el at es t o t he c o mpa ny, i t i s not r el ati ng t o s ec uri t y or i t s pri ce or a ny ot her par a met ers i ncl ude d i n t he de fini ti o n.

Yes I nf or mati o n r el ati ng t o di vi de nd i s i ncl ude di n de fini ti on of ‘ unp ub - li s he d pri ce s e nsi ti vei nf or mati on ’

No Thi s i nf or mati o n i s not r el at e d t o c o mpa ny, i t s s ec uri t y or pri ce of s ec uri t y he nce i t i s not ‘ unp ubli s he d pri ce s e nsi ti ve i nf or - mati o n ’ . I n f act i t i s i nf or mati o n r el ati ng t o ge ner al ec o no my of c o unt r y.

The c o mpa ny i s g oi ng t o have a n ot h e r pl a nt at Ru dr a p ur, Utt ar a k ha nd

The Chai r ma n of t he c o mpa ny has s ub m i tt e d hi s r esi g nati o n t o t he Boar d under pr ot est f or s ell - i ng a parti c ul ar br a nd t o a not her c o mpa ny.

Yes I nf or mati o n r el ati ng t o e x pa n - si o n of busi ness i s i ncl ude d i n de fini ti o n of ‘ unp ubli s he d pri ce s e nsi ti ve i nf or mati o n ’

Yes Tho ug h t hi s i nf or mati o n do not r el at e t o s ec uri t y or i t s pri ce but r el at es t o c o mpa ny poli cy a nd has pot e nti al t o aff ect pri ce i n t he mar ket, he nce i t i s ‘ unp ubli s he d pri ce s e nsi ti ve i nf or mati o n ’

7. Write a short note on: Unpublished price sensitive information

[June 2014 (4 Marks)]

Ans.: Unp ubli s he d pri ce s e nsi ti ve i nf or mati o n me a ns a ny i nf or mati o n, r el at - i ng t o a c o mpa ny or i t s s ec uri ti es, di r ectl y or i ndi r ectl y, t hat i s not ge ner all y avail a bl e a nd whi c h upo n bec o m i ng ge ner all y avail a bl e, i s li kel y t o mat eri all y aff ect t he pri ce of t he s ec uri ti es a nd or di naril y i ncl udes i nf or mati o n r el ati ng t o t he f oll o w i ng:

( a ) Fi na nci al r es ul t s

(b ) Di vi de nds

(

c ) Cha nge i n c a pi t al st r uct ur e

(d ) Mer gers, de- mer gers, ac q ui si ti o ns, de-li sti ngs, di s pos al s a nd e x pa nsi o n of b usi ness a nd s uc h ot her t r a ns acti o ns

(

e ) Cha nges i n K MP a nd

(f ) Mat eri al e ve nt s i n acc or da nce w i t h t he li sti ng agr ee me nt.

8. Raghav, General Manager (Accounts) of X Ltd., was found to be indulging in insider trading and as a consequence, the company terminated his services. The SEBI also took cognizance of the matter and initiated proceedings against him under the SEBI (Prohibition of Insider Trading) Regulations, 2015. Raghav pleaded that since X Ltd. had already penalised him by terminating his services, the SEBI could not initiate any proceedings against him. As per the SEBI Regulations and decided case laws, suggest whether the SEBI has a right to take any action against Raghav in this case of insider trading.

[June 2014 (8 Marks)]

Ans.: I nsi der s hall not c o mmuni c at e, pr ovi de or all o w access t o a ny unp ub - li s he d pri ce s e nsi ti ve i nf or mati o n r el ati ng t o t he c o mpa ny or i t s s ec uri ti es t o a ny pers o n.

I n gi ve n c as e Rag hav has f o und t o be i nd ul gi ng i n i nsi der t r a di ng, whi c h i s pr o hi bi t e d under t he S E BI ( Pr o hi bi ti o n of I nsi der Tr a di ng) Re g ul ati o ns, 2015.

I nsi der t r a di ng i s p uni s ha bl e u/s 15 G of t he S E BI Act, 1992 The pe nal t y i s as f oll o ws:

An i nsi der s hall be li a bl e t o pe nal t y whi c h s hall not be l ess t ha n ` 10 lakhs b ut whi c h may e xt e nd t o ` 25 Crores or 3 times of profits o ut of i nsi der t r a di ng, whi c he ver i s hi g her

Ta ki ng acti o n by c o mpa ny does not pr ecl ude t he S E BI f r o mt a ki ng a ny acti o n under t he S E BI Act, 1992 He nce, Rag hav’ s pl e a t hat he ha d al r e a dy pe nali s e d by t he c o mpa ny by t er m i nati ng hi s s er vi ces i s not acce pt a bl e.

9. A company shall specify a trading period for trading in its own securities. Comment. [Dec. 2014 (4 Marks)]

Ans.: Trading when in possession of unpublished price sensitive information

[Regulation 4] :

( 1) I nsi der s hall not t r a de i n s ec uri ti es t hat ar e li st e d or pr opos e d t o be li st e d o n a st oc k e xc ha nge whe n i n poss essi o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n.

Explanation:

Whe n a pers o n who has t r a de d i n s ec uri ti es has bee n i n poss essi o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n, hi s t r a des wo ul d be pr es u me d t o have bee n moti vat e d by t he k no w l e dge a nd a war e ness of s uc h i nf or mati o n i n hi s poss essi o n. Ho we ver, t he i nsi der may pr ove hi s i nnoce nce by de mo nst r ati ng t he ci r c u mst a nces i ncl udi ng t he f oll o w i ng:

(i ) The t r a ns acti o n i s a n off- mar ket inter se t r a nsf er bet wee n i nsi ders who wer e i n poss essi o n of t he s a me unp ubli s he d pri ce s e nsi ti ve i nf or mati o n w i t ho ut bei ng i n br e ac h of Re g ul ati o n 3 a nd bot h parti es ha d ma de a c o ns ci o us a nd i nf or me d t r a de deci si o n. Suc h unp ubli s he d pri ce s e nsi ti ve i nf or mati o n was not o bt ai ne d under r e g ul ati o n 3( 3). Suc h off- mar ket t r a des s hall be r e port e d by t he i nsi ders t o t he c o mpa ny w i t hi n 2 wor ki ng days Ever y c o mpa ny s hall noti f y t he parti c ul ars of s uc h t r a des t o t he st oc k e xc ha nge o n whi c h t he s ec uri ti es ar e li st e d w i t hi n 2 t r a di ng days f r o mr ecei pt of t he di s cl os ur e or f r o m bec o m i ng a war e of s uc h i nf or mati o n.

(ii ) The t r a ns acti on was carri e d o ut t hr o ug ht he bl oc k deal w i ndo w mec ha ni s m bet wee n pers o ns who wer e i n poss essi o n of t he unp ubli s he d pri ce s e nsi ti ve i nf or mati o n w i t ho ut bei ng i n br e ac h of Re g ul ati o n 3 a nd bot h parti es ha d ma de a c o ns ci o us a nd i nf or me d t r a de deci si o n. Suc h unp ubli s he d pri ce s e nsi ti ve i nf or mati o n was not o bt ai ne d by ei t her pers o n Re g ul ati o n 3( 3).

(iii ) The t r a ns acti o n i n q uesti o n was c arri e d o ut p urs ua nt t o a st at ut or y or r e g ul at or y o bli gati o n t o c arr y o ut a bona fide t r a ns acti o n.

(iv ) The t r a ns acti o ni n q uesti o n was undert a ke n p urs ua nt t o t he e xer ci s e of st oc k opti o ns i n r es pect of whi c h t he e xer ci s e pri ce was pr e- de - t er m i ne d i n c o mpli a nce w i t h a ppli c a bl e r e g ul ati o ns.

( v ) I n t he c as e of no n-i ndi vi d ual i nsi ders:

( a ) t he i ndi vi d ual s who wer e i n poss essi o n of s uc h unp ubli s he d pri ce s e nsi ti ve i nf or mati o n wer e di ff er e nt f r o mt he i ndi vi d ual s t a ki ng t r a di ng deci si o ns a nd s uc h deci si o n- ma ki ng i ndi vi d ual s wer e not i n poss essi o n of s uc h unp ubli s he d pri ce s e nsi ti ve i nf or mati o n whe n t he y t ook t he deci si o n t o t r a de; a nd

(b ) appr opri at e a nd a de q uat e arr a nge me nt s wer ei n pl ace t o e ns ur e t hat t hes e r e g ul ati o ns ar e not vi ol at e d a nd no unp ubli s he d pri ce s e nsi ti ve i nf or mati o n was c o mmuni c at e d by t he i ndi vi d ual s poss essi ng t he i nf or mati o n t o t he i ndi vi d ual s t a ki ng t r a di ng deci si o ns a nd t her e i s no e vi de nce of s uc h arr a nge me nt s havi ng bee n br e ac he d;

(vi ) The t r a des wer e p urs ua nt t o a t r a di ng pl a n s et up i n acc or da nce w i t h Re g ul ati o n 5.

( 2) I n t he c as e of c o nnect e d pers o ns t he o n us of est a bli s hi ng, t hat t he y wer e not i n poss essi o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n, s hall be o n s uc h c o nnect e d pers o ns a nd i n ot her c as es, t he o n us wo ul d be o n t he S E BI.

( 3) The S E BI may s peci f y s uc h st a ndar ds a nd r e q ui r e me nt s, f r o m ti me t o ti me, as i t may dee m necess ar y f or t he p ur pos e of t hes e r e g ul ati o ns.

Trading Plans [Regulation 5] :

(

1) An i nsi der s hall be e nti tl e d t o f or mul at e a t r a di ng pl a n a nd pr es e nt i t t o t he c o mpli a nce of ficer f or a ppr oval a nd p ubli c di s cl os ur e p urs ua nt t o whi c h t r a des may be c arri e d o ut o n hi s be hal f i n acc or da nce w i t h s uc h pl a n.

( 2) A t r a di ng pl a n f or mul at e by i nsi der i s s ubj ect t o f oll o w i ng c o ndi ti o ns:

(i ) Tr a di ng as per t r a di ng pl a n c a n be c o mme nce d aft er 6 mo nt hs f r o m t he dat e of p ubli c di s cl os ur e of s uc h t r a di ng pl a n.

(ii ) Tr a di ng as per t r a di ng pl a n c a nnot be e xec ut e d 20t h t r a di ng day pri or t o l ast day of a ny fina nci al peri o d a nd t he s ec o nd t r a di ng day aft er t he di s cl os ur e of s uc h fina nci al r es ul t s. (logic is that 20th day earlier to close of financial period the company has announce financial results)

(iii ) Tr a di ng pl a n s ho ul d not be l ess t ha n 12 mo nt hs.

(iv ) T wo t r a di ng pl a n s ho ul d not overl a p e ac h ot her. (In other words, second trading plan cannot be made unless first trading plan ends )

( v ) Suc ht r a di ng pl a n s hall s et o ut ei t her t he val ue of t r a des t o be eff ect e d or t he n u mber of s ec uri ti es t o be t r a de d al o ng w i t h t he nat ur e of t he t r a de a nd t he i nt er val s at, or dat es o n whi c h s uc h t r a des s hall be eff ect e d.

(vi ) Tr a di ng pl a n s hall not be us e d f or t r a di ng i n s ec uri ti es f or mar ket a b us e.

( 3) The c o mpli a nce of ficer s hall r e vi e w t he t r a di ng pl a n t o ass ess whet her t he pl a n wo ul d have a ny pot e nti al f or vi ol ati o n of t hes e r e g ul ati o ns a nd s hall be e nti tl e d t o s ee k s uc h e x pr ess undert a ki ngs as may be necess ar y t o e na bl e s uc h ass ess me nt a nd t o a ppr ove a nd mo ni t or t he i mpl e me nt a - ti o n of t he pl a n Ho we ver, pr e- cl e ar a nce of t r a des s hall not be r e q ui r e d f or a t r a de e xec ut e d as per a n a ppr ove d t r a di ng pl a n. It i s al s o pr ovi de d t hat t r a di ng w i ndo w nor ms a nd r est ri cti o ns o n c o nt r a t r a de s hall not be a ppli c a bl e f or t r a des c arri e d o ut i n acc or da nce w i t h a n a ppr ove d t r a di ng pl a n.

( 4) The t r a di ng pl a n o nce a ppr ove d s hall be i rr e v oc a bl e a nd t he i nsi der s hall ma ndat oril y have t o i mpl e me nt t he pl a n, w i t ho ut bei ng e nti tl e d t o ei t her de vi at e f r o mi t or t o e xec ut e a ny t r a de i n t he s ec uri ti es o ut si de t he s c ope of t he t r a di ng pl a n. Ho we ver, t he i mpl e me nt ati o n of t he t r a di ng pl a n s hall not be c o mme nce d i f a ny unp ubli s he d pri ce s e nsi ti ve i nf or mati o n i n poss essi o n of t he i nsi der at t he ti me of f or mul ati o n of t he pl a n has not bec o me ge ner all y avail a bl e at t he ti me of t he c o mme nce me nt of i mpl e

(

me nt ati o n a nd i n s uc h e ve nt t he c o mpli a nce of ficer s hall c o nfir m t hat t he c o mme nce me nt o ug ht t o be def err e d until s uc h unp ubli s he d pri ce s e nsi ti ve i nf or mati o n bec o mes ge ner all y avail a bl e i nf or mati o n s o as t o av oi d a vi ol ati o n of Re g ul ati o n 4( 1).

5) Upo n a ppr oval of t he t r a di ng pl a n, t he c o mpli a nce of ficer s hall noti f y t he pl a n t o t he st oc k e xc ha nges o n whi c h t he s ec uri ti es ar e li st e d.

10. Sunil, Company Secretary and Executive Director of a company, had bought shares of that company on behalf of his family members on the basis of unpublished price sensitive information, which was not known to general public but to him as an employee of the company.

Family members later on tendered the said shares in an open offer announced by some acquiring company at a higher price, thereby making huge gains. The SEBI found Sunil guilty of misconduct of insider trading and imposed penalty. Sunil admitted that he had made a mistake but contested the penalty. He, however, was willing to pay back the profit earned by sale of shares.

Considering the facts of the case, you are required to suggest whether as per the relevant legal provisions relating to insider trading, the SEBI should waive the penalty considering the fact that Sunil admits indulging in insider trading and is willing to pay back the whole profit earned. [Dec. 2014 (8 Marks)]

Ans.: I nsi der t r a di ng i s p uni s ha bl e u/s 15 G of t he S E BI Act, 1992. The pe nal t y i s as f oll o ws:

An i nsi der s hall be li a bl e t o pe nal t y whi c h s hall not be l ess t ha n ` 10 lakhs b ut whi c h may e xt e nd t o ` 25 Crores or 3 times of profits o ut of i nsi der t r a di ng, whi c he ver i s hi g her.

I n gi ve n c as e, Sunil bei ng Co mpa ny Secr et ar y a nd Exec uti ve Di r ect or of a c o mpa ny i s i nsi der a nd has c o mm i tt e d off e nce of i nsi der t r a di ng. Th us, S E BI c a n i mpos e pe nal t y o n hi m as per Secti o n 15 G of t he S E BI Act, 1992.

The Supr e me Co urt i n t he matt er of SEBI v. Sriram Mutual Fund ha d hel d t hat, “ o nce t he vi ol ati o n of st at ut or y r e g ul ati o n i s est a bli s he d, i mposi ti o n of pe nal t y bec o mes sine qua non of vi ol ati o n a nd i nt e nti o n of parti es c o mm i tti ng vi ol ati o n t ot all y bec o mes i rr el e va nt”.

Ho we ver, i n gi ve n si nce, Mr. Sunil has a d m i tt e d hi s off e nce a nd has off er e d t o pay bac k pr ofi t s o pe nal t y t o t hat e xt e nd may be r e d uce d.

11. Unpublished price sensitive information is any information which relates directly or indirectly to a company.

Ans.: Please refer to answer of Question No. 7.

12. Write a short note on: Insider Trading

[June 2015 (4 Marks)]

[June 2015 (4 Marks)]

Ans.: I nsi der t r a di ng i s t he t r a di ng of a p ubli c c o mpa ny ’ s st oc k or ot her s ec u - ri ti es by i ndi vi d ual s w i t h access t o no n- p ubli c i nf or mati o n a bo ut t he c o mpa ny. I n vari o us c o unt ri es, t r a di ng bas e d o n i nsi der i nf or mati o n i s ill e gal. Thi s i s

11.10

bec a us e i t i s s ee n as unf ai r t o ot her i nvest ors who do not have access t o t he i nf or mati o n as t he i nvest or w i t h i nsi der i nf or mati o n c o ul d pot e nti all y ma ke f ar l ar ger pr ofi t s t hat a t y pi c al i nvest or c o ul d not ma ke.

Th us, i n i nsi der t r a di ng a n i nsi der t a kes und ue a dva nt age of ‘ pri ce s e nsi ti ve i nf or mati o n ’ f or hi s pers o nal be nefi t. Thi s i s not f ai r i n t he i nt er est of c a pi t al mar ket i n ge ner al a nd i nvest ors I nsi der t r a di ng i s a n off e nce i n I ndi a

Penalty for insider trading [Section 15G]:

An i nsi der s hall be li a bl e t o pe nal t y whi c h s hall not be l ess t ha n ` 10 lakhs b ut whi c h may e xt e nd t o ` 25 Crore or 3 times of profits o ut of i nsi der t r a di ng, whi c he ver i s hi g her.

13. The SEBI Act, 1992 provides for prohibition of manipulative and deceptive devices and insider trading. [Dec. 2015 (5 Marks)]

Ans.: “I nsi der t r a di ng ge ner all y me a ns t r a di ng i n t he s har es of a c o mpa ny by t he pers o ns who ar e i n t he ma nage me nt of t he c o mpa ny or ar e cl os e t o t he m o n t he basi s of undi s cl os e d pri ce s e nsi ti ve i nf or mati o n r e gar di ng t he wor ki ng of t he c o mpa ny, whi c h t he y poss ess b ut whi c h i s not avail a bl e t o ot hers. ”

The c o nce pt of I nsi der Tr a di ng i n I ndi a st art e d f er me nti ng i n t he 80’ s a nd 90’ s a nd c a me t o be k no wn a nd o bs er ve d e xt e nsi vel y i n t he I ndi a n Sec uri ti es mar ket. The r a pi dl y a dva nci ng I ndi a n Sec uri ti es mar ket nee de d a mor e c o mpr e he nsi ve l e gi sl ati o n t o r e g ul at e t he pr acti ce of I nsi der Tr a di ng, t h us r es ul ti ng i n t he f or mul ati o n of t he S E BI ( I nsi der Tr a di ng) Re g ul ati o ns i n t he ye ar 1992, whi c h wer e a me nde d i n t he ye ar 2002 aft er t he di s cr e pa nci es o bs er ve d i n t he 1992 r e g ul ati o ns i n t he c as es li ke

Hindustan Levers Ltd. v. SEBI , Rakesh Agarwal v. SEBI , et c. t o r e move t he l ac unae e xi sti ng i n t he Re g ul ati o ns of 1992. The a me nd me nt i n 2015 c a me t o be k no wn as t he S E BI ( Pr o hi bi ti o n of I nsi der Tr a di ng) Re g ul ati o n, 2015.

14. ‘Insider’ means any person who is or was connected with the company or is deemed to have been connected with the company. Comment. [June 2016 (4 Marks)]

Ans.: Please refer to answer of Question No. 2.

15. What is ‘price sensitive information’? Which information is deemed to be price sensitive information? State with reasons whether the following information is price sensitive:

(i) The CEO of a company died in an air-crash.

(ii) RBI has increased its statutory liquidity ratio (SLR) by 25 basis points.

(iii) The company is setting-up another plant in Gujarat.

(iv) The company is negotiating with a foreign company to sell its stake in Star Ltd. [June 2016 (8 Marks)]

Ans.: Unp ubli s he d pri ce s e nsi ti ve i nf or mati o n me a ns a ny i nf or mati o n, r el at - i ng t o a c o mpa ny or i t s s ec uri ti es, di r ectl y or i ndi r ectl y, t hat i s not ge ner all y avail a bl e a nd whi c h upo n bec o m i ng ge ner all y avail a bl e, i s li kel y t o mat eri all y

aff ect t he pri ce of t he s ec uri ti es a nd or di naril y i ncl udes i nf or mati o n r el ati ng t o t he f oll o w i ng:

( a ) Fi na nci al r es ul t s

(b ) Di vi de nds

( c ) Cha nge i n c a pi t al st r uct ur e

(d ) Mer gers, de- mer gers, ac q ui si ti o ns, de-li sti ngs, di s pos al s a nd e x pa nsi o n of b usi ness a nd s uc h ot her t r a ns acti o ns

( e ) Cha nges i n K MP

(f ) Mat eri al e ve nt s i n acc or da nce w i t h t he li sti ng agr ee me nt.

I n vi e w of a bove, a ns wer t o gi ve n pr o bl e mi s as f oll o ws:

Information

The CE O of a c o mpa ny di e d i n ai r- cr as h.

Price sensitive or not

Reason

No Tho ug h i nf or mati o n r el at es t o t he c o mpa ny, i t i s not r el ati ng t o s ec uri t y or i t s pri ce or a ny ot her par a met ers i ncl ude d i n t he de fini ti o n.

RBI has i ncr eas e d r e po r at e by 25 basi s poi nt s.

No Thi s i nf or mati o n i s not r el at e d t o c o mpa ny, i t s s ec uri t y or pri ce of s ec uri t y he nce i t i s not ‘ unp ubli s he d pri ce s e nsi ti ve i nf or - mati o n ’ . I n f act i t i s i nf or mati o n r el ati ng t o ge ner al ec o no my of c o unt r y.

The c o mpa nyi s s etti ng- up a not her pl a nt i n Guj ar at

The c o mpa ny i s neg oti ati ng w i t h f or ei g n c o mpa ny t o s ell i t s st a ke i n St ar Lt d.

Yes I nf or mati o n r el ati ng t o e x pa n - si o n of busi ness i s i ncl ude d i n de fini ti o n of ‘ unp ubli s he d pri ce s e nsi ti ve i nf or mati o n ’ .

Yes Thi s i nf or mati o n r el at es t o t he i nvest me nt st r at egy of c o mpa ny a nd may li kel y aff ect t he pri ce i t s s ec uri t y a nd he nce i ncl ude d i n t he de fini ti o n

16. Write note on: Person deemed to be connected person [Dec. 2016 (4 Marks)]

Ans.: Please refer to answer of Question No. 2.

17. Write a short note on: Provisions of the Companies Act, 2013 relating to insider trading [June 2017 (4 Marks)]

Ans.: Section 195 of the Companies Act, 2013 has been deleted by the Companies (Amendment ) Act, 2017. Thus, this question is not relevant for Dec. 2017 and onward exams.

18. Trading plan is an exception to the general rule that an insider should not trade when in possession of unpublished price sensitive information. However, trading plan once made cannot be revoked. Do you agree? If yes, give reasons for the same. [Dec. 2017 (6 Marks)]

Ans.: Please refer to answer of Question No. 9

19. What is Trading Plan under the SEBI (Prohibition of Insider Trading) Regulations, 2015? State the requirements to be complied with in this regard. [Dec. 9 2018 (4 Marks)]

Ans.: Please refer to answer of Question No. 9

20. You are working as the Company Secretary of a listed company viz. Mindspare Ltd. The company is in advance stage of negotiation with a buyer, who will drastically improve the profitability and financial position of the company. You have got some information that one of the employees of the company, who is involved in the negotiation may indulge in trading of shares of the company. Being a compliance officer, you are required to formulate a code of conduct to regulate, monitor and report trading by employees and other connected persons towards achieving compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015. [Dec. 2018 (7 Marks)]

Ans.:

Code of Conduct of Mindspare Ltd.

[As per Schedule B read with Regulation 9(2)(1) of the SEBI (Prohibition of Insider Trading) Regulations, 2015]

1. Applicability: Thi s Co de s hall a ppl y t o all Desi g nat e d E mpl oyees of t he Co mpa ny a nd ot her Co nnect e d Pers o ns as de fine d i n S EBI ( Pr o hi bi ti o n of I nsi der Tr a di ng) Reg ul ati o ns, 2015

2. Objective of the code: The o bj ecti ve of t he Co de i s t o r eg ul at e, mo ni t or a nd r e port t r a di ng by Desi g nat e d E mpl oyees a nd ot her Co nnect e d Pers o ns t o war ds ac hi evi ng c o mpli a nce w i t h S EBI Reg ul ati o ns

3 . Compliance Officer: The Co mpa ny Secr et ar y s hall be t he Co mpli a nce Of ficer f or t he p ur pos e of t he Co de

The Co mpli a nce Of ficer s hall be r es po nsi bl e f or c o mpli a nce of poli ci es, pr oce dur es, mai nt e na nce of r ec or ds, mo ni t ori ng a dher e nce t o t he r ul es f or t he pr es er vati o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n, mo ni t ori ng of t r a des a nd t he i mpl e me nt ati o n of t he Co de of Co nduct under t he over all s uper vi si o n of t he Boar d of Di r ect ors

4. Prohibition on forward dealings in securities by director or KMP: No Di r ect or / Key Ma nageri al Pers o nnel of t he c o mpa ny s hall buy i n t he c o mpa ny or i n i t s s ubsi di ar y or ass oci at e c o mpa ny

( a ) A ri g ht t o call f or deli ver y or a ri g ht t o ma ke deli ver y at a s peci fie d pri ce a nd w i t hi n a s peci fie d ti me, of a s peci fie d nu mber of r el eva nt s ec uri ti es or a s peci fie d a mo unt of r el eva nt de be nt ur es; or

(b ) A ri g ht, as he/s he may el ect, t o call f or deli ver y or t o ma ke deli ver y at a s peci fie d pri ce a nd w i t hi n a s peci fie d ti me, of a s peci fie d nu mber of r el eva nt s ec uri ti es or a s peci fie d a mo unt of r el eva nt de be nt ur es.

5. Trading in securities: No I nsi der s hall t r a de i n s ec uri ti es of t he Co mpa ny whe n i n poss essi o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n exce pt ot her w i s e pr ovi de d under t he S EBI Reg ul ati o ns.

All Desi g nat e d pers o ns s hall c o nduct all t hei r t r a di ng i n t he s ec uri ti es of t he c o mpa ny o nl y i n a vali d t r a di ng w i ndo w a nd s hall not t r a de i n c o mpa ny ’ s s ec uri ti es duri ng t he peri o ds whe n t r a di ng w i ndo w i s cl os e d, as r ef err e d t o i n cl a us e 6. 2 or duri ng a ny ot her peri o d as may be s peci fie d by t he Co mpa ny f r o mti me t o ti me.

I nsi der s ub m i tti ng t he Tr a di ng Pl a n s hall al s o a dher e t o t he c o ndi ti o ns as st at e d i n cl a us e 10

6. Trading Window:

6.1 The t r a di ng w i ndo w s hall be cl os e d duri ng t he ti me t he i nf or mati o n r ef err e d t o i n cl a us e 6 2 bec o mes ge ner all y avail a bl e

6.2 The Tr a di ng W i ndo w s hall be inter alia cl os e d t e n days pri or t o f oll o w i ng eve nt s:

(

a ) Boar d meeti ng f or decl ar ati o n of fina nci al r es ul t s;

(

b ) Boar d meeti ng f or decl ar ati o n of i nt eri m di vi de nd or final di vi de nd;

(

c ) Boar d meeti ng f or c ha nge i n ca pi t al st r uct ur e li ke i ss ue of s ec uri ti es by way of p ubli c/ri g ht / bo nus, buy- bac k et c;

(d ) Boar d Meeti ng hel d t o a ppr ove a ny mer gers, de- mer gers, ac q ui si ti o ns, deli sti ng, di s pos al s a nd ex pa nsi o n of busi ness a nd s uc h ot her t r a ns acti o ns;

( e ) Any s uc h ot her mat eri al eve nt (i n acc or da nce w i t h t he li sti ng agr ee me nt) as may be dee me d fit by t he Co mpli a nce Of ficer;

Ho wever, i f t he ci r c u mst a nces s o warr a nt s t he ti me f or cl osi ng t he w i ndo w may be i ncr eas e d or decr eas e d w i t h t he a ppr oval of Co mpli a nce Of ficer a nd Chai r ma n & Ma nagi ng Di r ect or.

The t r a di ng w i ndo w s hall be ope ne d 48 ho urs aft er i nf or mati o n r ef err e d t o i n cl a us e 6 2 bec o mes ge ner all y avail a bl e

The t r a di ng w i ndo wr est ri cti ons s hall al s o be appli ca bl e t o a ny pers on havi ng c ont r act ual or fiduci ar y r el ati o n w i t h t he c o mpa ny, s uc h as a udi t ors, acc o unt a ncy fir ms, l a w fir ms, a nal yst s, c o ns ul t a nt s et c., assi sti ng or a dvi si ng t he c o mpa ny.

7. Pre-clearance of trades: All Desi g nat e d Pers o ns who i nt e nd t o t r a de i n t he s ec uri ti es of t he c o mpa ny s ho ul d pr e- cl ear t he t r a ns acti o ns as per t he pr e- t r a di ng pr oce dur e as des cri be d her e under.

An a ppli cati o n s hall be ma de i n For m‘ P C- I’ t o t he Co mpli a nce Of ficer i ndi cati ng t he esti mat e d nu mber of s ec uri ti es t hat t he Desi g nat e d Pers o ns i nt e nds t o t r a de i n, t he det ail s as t o t he de posi t or y w i t h whi c h he has a s ec uri t y acc o unt, t he det ail s as t o t he s ec uri ti es i n s uc h de posi t or y mo de a nd s uc h ot her det ail s as may be r e q ui r e d by a ny r ul e ma de by t he c o mpa ny i n t hi s be hal f.

All Desi g nat e d Pers o ns s hall exec ut e t hei r or der i n r es pect of s ec uri ti es of t he c o mpa ny w i t hi n s eve n t r a di ng days aft er t he a ppr oval of pr e- cl ear a nce i s gi ve n. If t he or der i s not exec ut e d w i t hi n t he af or e me nti o ne d s peci fie d peri o d, t he Desi g nat e d pers o n must pr e- cl ear t he t r a ns acti o n agai n by f oll o w i ng t he a bove pr oce dur e

I n cas e t he Desi g nat e d Pers o ns or hi s / her i mme di at e r el ati ve deci des not t o exec ut e t he t r a de aft er s ec uri ng pr e- cl ear a nce, he/s he s hall i nf or m t he Co mpli a nce Of ficer of s uc h deci si o n al o ng w i t h r eas o ns t her e of i mme di at el y.

No Desi g nat e d Pers o ns s hall a ppl y f or pr e- cl ear a nce of a ny pr opos e d t r a de whe n t he t r a di ng w i ndo wi s cl os e d or i f he/s he i s i n poss essi o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n.

Pri or t o a ppr ovi ng a ny t r a des, t he c o mpli a nce of ficer s hall be e nti tl e d t o s ee k decl ar ati o ns t o t he eff ect t hat t he a ppli cati o n f or pr e- cl ear a nce i s not i n poss essi o n of a ny unp ubli s he d pri ce s e nsi ti ve i nf or mati o n He s hall al s o have r egar d t o whet her a ny s uc h decl ar ati o n i s r eas o na bl y ca pa bl e of bei ng r e nder e d i nacc ur at e.

All Desi g nat e d Pers o ns who buy or s ell a ny nu mber of s ec uri ti es of t he c o mpa ny s hall not exec ut e a c o nt r a t r a de i. e. s ell or buy a ny nu mber of s ec uri ti es duri ng t he next 6 mo nt hs f oll o w i ng t he pri or t r a ns acti o n.

The Co mpli a nce Of ficer may gr a nt r el axati on f r o mst ri ct appli cati on of s uc h r est ri cti on f or r eas o ns t o be r ec or de d i n wri ti ng pr ovi de d t hat s uc h r el axati o n does not vi ol at e t he S EBI Reg ul ati o ns. Sho ul d a c o nt r a t r a de be exec ut e d, i na dvert e ntl y or ot her w i s e, i n vi ol ati o n of s uc h a r est ri cti o n, t he pr o fit s f r o m s uc h t r a de s hall be li a bl e t o be di s g or ge d f or r e m i tt a nce t o S EBI f or cr e di t t o t he I nvest or Pr ot ecti o n a nd Educati o n Fund a d m i ni st er e d by S EBI under t he Act

8. Trading Plans: An I nsi der s hall be e nti tl e d t o f or mul at e a t r a di ng pl a n a nd pr es e nt i t t o t he Co mpli a nce Of ficer f or a ppr oval a nd p ubli c di s cl os ur e p urs ua nt t o whi c h t r a des may be carri e d o ut o n hi s / her be hal f i n acc or da nce w i t h s uc h pl a n.

The t r a di ng pl a n o nce a ppr ove d s hall be i rr ev oca bl e a nd t he i nsi der s hall ma ndat oril y have t o i mpl e me nt t he pl a n, w i t ho ut bei ng e nti tl e d t o ei t her devi at e f r o m i t or t o exec ut e a ny t r a de i n t he s ec uri ti es o ut si de t he s c ope of t he t r a di ng pl a n

Upo n a ppr oval of t he t r a di ng pl a n, t he Co mpli a nce Of ficer s hall noti f y t he pl a n w i t hi n 7 days of s uc h a ppr oval t o t he st oc k exc ha nges o n whi c h t he s ec uri ti es ar e li st e d.

9. Disclosure Requirements: Pr o mot er / Di r ect or / K MP/ E mpl oyee ( a nd al s o i mme di at e r el ati ves of s uc h pers o n) s hall ma ke necess ar y di s cl os ur e t o t he Co mpa ny as per For ms att ac he d t o Annex ur e t o t hi s c o de

10. Uploading of the Code on Company’s Website

Thi s Co de a nd a ny a me nd me nt s t her et o s hall be avail a bl e o n t he we bsi t e of t he Co mpa ny.

11. Compliance with the Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information

Any c o mmuni cati o n, di ss e m i nati o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n by Desi g nat e d Pers o ns s hall be di s cl os e d o nl y i n a dher e nce t o t he “ Co de of Pr acti ces a nd Pr oce dur es f or Fai r Di s cl os ur e of Unp ubli s he d Pri ce Se nsi ti ve I nf or mati o n” exce pt s uc h c o mmuni cati o n, di ss e m i nati o n i s r e q ui r e d st at ut oril y.

Annexure

(Various Forms will appear here )

For m A

For m B

For m C

For m D

21. The price of equity share of a listed company viz. Next Dial Ltd. (NDL) increased from ` 10 to high of ` 50 i.e. a rise of 500% during the period 1st April, 2018 to 30th Sept., 2018. NDL had entered into a Share Purchase Agreement (SPA) with the proposed acquirer(s) to acquire 40% of the subscribed equity share capital as of 31st Aug., 2018 which would result in change of management. This initial discussion on the deal was made on 1st April, 2018 but SPA was signed on 25th April, 2018.

During 1st April, 2018 to 30th Sept., 2018, the promoter and his wife dealt in the script of Next Dial Ltd. Referring to the provisions of SEBI (PIT) Regulations, answer the following:

(i) Define Unpublished Price Sensitive Information.

(

(

ii) Whether there was any Unpublished Price Sensitive Information (UPSI)?

iii) What will be the date of UPSI?

(

iv) What are the factors to be taken into account by the adjudicating officer while imposing penalty for the act? [June 2019 (8 Marks)]

Ans.: As per Regulation 2(n) of t he SEBI (Prohibition of Insider Trading) Regulations, 2015 , unp ubli s he d pri ce s e nsi ti ve i nf or mati o n me a ns a ny i nf or - mati o n, r el ati ng t o a c o mpa ny or i t s s ec uri ti es, di r ectl y or i ndi r ectl y, t hat i s not ge ner all y avail a bl e a nd whi c h upo n bec o m i ng ge ner all y avail a bl e, i s li kel y t o mat eri all y aff ect t he pri ce of t he s ec uri ti es a nd or di naril y i ncl udes i nf or mati o n r el ati ng t o t he f oll o w i ng:

( a ) Fi na nci al r es ul t s

(b ) Di vi de nds

( c ) Cha nge i n c a pi t al st r uct ur e

(d ) Mer gers, de- mer gers, ac q ui si ti o ns, de-li sti ngs, di s pos al s a nd e x pa nsi o n of b usi ness a nd s uc h ot her t r a ns acti o ns

( e ) Cha nges i n K MP .

Ac q ui si ti o n of 40 % s har es by ac q ui r er by whi c h ma nage me nt of t he c o mpa ny c ha nges i s unp ubli s he d pri ce s e nsi ti ve i nf or mati o n as i t i s li kel y t o mat eri all y aff ect t he pri ce of s ec uri ti es.

Dat e of UPSI i s 25t h April, 2018, whe n s har e p ur c has e Agr ee me nt ( SPA) was si g ne d.

As per Section 15J of t he S E BI Act, 1992 f oll o w i ng f act ors s hall be t a ke n i nt o acc o unt by t he a dj udi c ati ng offi cer whil e a dj udgi ng t he q ua nt u m of pe nal t y -

( a ) The a mo unt of di s pr oporti o nat e gai n or unf ai r a dva nt age (i f q ua nti fia bl e) ma de as a r es ul t of t he def a ul t.

(b ) The a mo unt of l oss t o a n i nvest or or gr o up of i nvest ors as a r es ul t of t he def a ul t.

( c ) The r e peti ti ve nat ur e of t he def a ul t.

22. Who can be a Compliance Officer under SEBI (PIT) Regulations, 2015? Will an Engineering graduate from a top engineering college with 5 years of experience working as Chief Technical Officer (CTO) be a Compliance Office? Discuss. [Dec. 2019 (5 Marks)]

Ans.: As per Re g ul ati o n 2( c ) of t he S E BI ( Pr o hi bi ti o n of I nsi der Tr a di ng) Re g u - l ati o ns, 2015, ‘ Co mpli a nce Offi cer ’ me a ns a ny s e ni or offi cer, desi g nat e d s o a nd r e porti ng t o t he boar d of di r ect ors or he a d of t he or ga ni z ati o n i n c as e boar d i s not t her e, whoi s fi na nci all yli t er at e a ndi s c a pa bl e of a ppr eci ati ng r e q ui r e me nt s f or l e gal a nd r e g ul at or y c o mpli a nce a nd who s hall be r es po nsi bl e f or c o mplia nce of poli ci es, pr oce d ur es, mai nt e na nce of r ec or ds, mo ni t ori ng a dher e nce t o t he r ul es f or t he pr es er vati o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n, mo ni t ori ng of t r a des a nd t he i mpl e me nt ati o n of t he c o des s peci fi e d i n t hes e r e g ul ati o ns under t he over all s uper vi si o n of t he boar d of di r ect ors of t he li st e d c o mpa ny or t he he a d of a n or ga ni z ati o n, as t he c as e may be.

Explanation: Fi na nci all y li t er at e s hall me a n a pers o n who has t he a bili t y t o r e a d a nd underst a nd basi c fi na nci al st at e me nt s i.e. bal a nce s heet, pr ofi t a nd l oss acc o unt, a nd st at e me nt of c as h fl o ws.

Thus, Engineering graduate from a top engineering college with 5 years of experience working as Chief Technical Officer (CTO) cannot be appointed as a Compliance Officer in terms of the SEBI (Prohibition of Insider Trading) Regulations, 2015 as he is not financially literate.

23. As a Company Secretary in employment of Delux Ltd., a listed company, what will be your role in monitoring trading window under SEBI (Prohibition of Insider Trading) Regulations, 2015. [Dec. 2020 (4 Marks)]

Ans.: Rol e of Co mpa ny Secr et ar y i n mo ni t ori ng t r a di ng w i ndo w under S E BI ( Pr o hi bi ti o n of I nsi der Tr a di ng) Re g ul ati o ns, 2015 i s as under:

u

To e ns ur e t hat t he t r a di ng w i ndo w s hall be cl os e d whe n a desi g nat e d pers o n or cl ass of desi g nat e d pers o ns c a n r e as o na bl y be e x pect e d t o have poss essi o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n. Suc h cl os ur e s hall be i mpos e d i n r el ati o n t o s uc h s ec uri ti es t o whi c h s uc h unp ubli s he d pri ce s e nsi ti ve i nf or mati o n r el at es.

u

To e ns ur e t hat t he t r a di ng w i ndo wi s cl os e d at t he ti me of – ( a ) decl ar a - ti o n of Fi na nci al r es ul t s (b ) decl ar ati o n of di vi de nds ( c ) c ha nge i n c a pi t al st r uct ur e (d ) mer gers, de- mer gers, ac q ui si ti o ns, de-li sti ngs, di s pos al s a nd e x pa nsi o n of b usi ness a nd s uc h ot her t r a ns acti o ns ( e ) c ha nges i n ke y ma nageri al pers o nnel

u

u

To e ns ur e t hat desi g nat e d pers o ns a nd t hei r i mme di at e r el ati ves s hall not t r a de i n s ec uri ti es whe n t he t r a di ng w i ndo wi s cl os e d

To e ns ur e t hat no t r a di ng s hall bet wee n 20t h day pri or t o cl os er of fina nci al peri o d a nd 2nd t r a di ng day aft er di s cl os ur e of fina nci al r es ul t s

u

To a ppr ove t he t r a di ng pl a n a nd aft er t he a ppr oval of t r a di ng pl a n, as c o mpli a nce of ficer s hall noti f y t he pl a n t o t he st oc k e xc ha nges o n whi c h t he s ec uri ti es ar e li st e d.

u

u

To kee p r ec or ds of peri o d s peci fie d as ‘ cl os e peri o d’ a nd t he ‘ t r a di ng w i n - do w ’ .

To e ns ur e t hat t he t r a di ng r est ri cti o ns ar e st ri ctl y o bs er ve d a nd all dir ect ors / of ficers / desi g nat e d e mpl oyees c o nd uct all t hei r de ali ngs i n t he s ec uri ti es of t he c o mpa ny o nl y i n a vali d t r a di ng w i ndo w a nd do not de al i n t he c o mpa ny ’ s s ec uri ti es d uri ng t he peri o d whe n t he t r a di ng w i ndo w i s cl os e d.

u

The ti m i ng f or r e- ope ni ng of t he t r a di ng w i ndo w s hall be det er m i ne d by t he c o mpli a nce of ficer t a ki ng i nt o acc o unt vari o us f act ors i ncl udi ng t he unp ubli s he d pri ce s e nsi ti ve i nf or mati o n i n q uesti o n bec o m i ng ge ner all y avail a bl e a nd bei ng c a pa bl e of assi mil ati o n by t he mar ket, whi c h i n a ny e ve nt s hall not be e arli er t ha n 48 ho urs aft er t he i nf or mati o n bec o mes ge ner all y avail a bl e.

24. ‘‘Trading plan is an exception to the general rule that an insider should not trade when in possession of unpublished price sensitive information’’. In the light of this statement, explain the concept of trading plan and its essential elements.

[June 2021 (4 Marks)]

Ans.: Please refer to Regulation 5 in answer of question No. 9.

25. Referring to the SEBI Insider Trading Regulations, answer the following:

(

a) What is ‘unpublished price sensitive information’?

(

b) State with reasons whether the following information is price sensitive:

(

i) RBI has increased its Statutory Liquidity Ratio (SLR) by 15 basis points.

(ii) The company is increasing its authorized share capital.

[June 2021 (4 Marks)]

Ans.: Unp ubli s he d pri ce s e nsi ti ve i nf or mati o n me a ns a ny i nf or mati o n, r el at - i ng t o a c o mpa ny or i t s s ec uri ti es, di r ectl y or i ndi r ectl y, t hat i s not ge ner all y avail a bl e a nd whi c h upo n bec o m i ng ge ner all y avail a bl e, i s li kel y t o mat eri all y aff ect t he pri ce of t he s ec uri ti es a nd or di naril y i ncl udes i nf or mati o n r el ati ng

t o t he f oll o w i ng:

( a ) Fi na nci al r es ul t s

(b ) Di vi de nds

( c ) Cha nge i n c a pi t al st r uct ur e

(d ) Mer gers, de- mer gers, ac q ui si ti o ns, de-li sti ngs, di s pos al s a nd e x pa nsi o n of b usi ness a nd s uc h ot her t r a ns acti o ns

( e ) Cha nges i n K MP

(f ) Mat eri al e ve nt s i n acc or da nce w i t h t he li sti ng agr ee me nt. [Deleted ]

11.18

I n vi e w of a bove, a ns wer t o gi ve n pr o bl e mi s as f oll o ws:

Information

RBI has i ncr eas e d r e po r at e by 15 basi s poi nt s

Price sensitive or not

Reasons

No Thi s i nf or mati o n i s not r el at e d t o c o mp a ny, i t s s e c uri t y or pri c e of s ec uri t y he nce i t i s not ‘ unp ubli s he d pri ce s e nsi ti ve i nf or mati o n ’ . I n f act i t i s i nf or mati o n r el ati ng t o ge ner al ec o no my of c o unt r y.

I n c r e as e i n a ut h ori z e d ca pi t al

Yes I nf or mati on r el ati ng t o capi t al st r uct ur e i s i ncl ude di n de fini ti on of ‘ unp ubli s he d pri ce s e nsi ti ve i nf or mati o n ’

26. The term internal control is generally linked to controls mechanism for financial and non-financial processes of an entity. Is there any internal control process to prevent insider trading under SEBI Regulations? You, being a Company Secretary of the company, suggest your CEO about internal controls to ensure the compliance under the said regulation? [Dec. 2021 (4 Marks)]

Ans.: Re g ul ati o n 9 A of t he S E BI ( Pr o hi bi ti o n of I nsi der Tr a di ng) Re g ul ati o ns, 2015 ma kes f oll o w i ng pr ovi si o ns i n r el ati o n t o ‘ i nt er nal c o nt r ol’:

u

Chi ef Exec uti ve Of ficer, Ma nagi ng D i r ect or or s uc h ot her a nal ogo us pers on of a li st e d c o mpa ny, i nt er me di ar y or fid uci ar y s hall p ut i n pl ace a de q uat e a nd eff ecti ve s yst e m of i nt er nal c o nt r ol s t o e ns ur e c o mpli a nce w i t h t he r e q ui r e me nt s gi ve n i n t hes e r e g ul ati o ns t o pr e ve nt i nsi der t r a di ng.

u The i nt er nal c o nt r ol s s hall i ncl ude t he f oll o w i ng:

All e mpl oyees who have access t o unp ubli s he d pri ce s e nsi ti ve i nf or - mati o n ar e i de nti fie d as desi g nat e d pers o n

All t he unp ubli s he d pri ce s e nsi ti ve i nf or mati o n s hall be i de nti fie d a nd i t s c o nfide nti ali t y s hall be mai nt ai ne d as per t he r e q ui r e me nt s of t hes e r e g ul ati o ns.

Ade q uat e r est ri cti o ns s hall be pl ace d o n c o mmuni c ati o n or pr oc ur e - me nt of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n as r e q ui r e d by t hes e r e g ul ati o ns.

Li st s of all e mpl oyees a nd ot her pers o ns w i t h who m unp ubli s he d pri ce s e nsi ti ve i nf or mati o n i s s har e d s hall be mai nt ai ne d a nd c o nfi - de nti ali t y agr ee me nt s s hall be si g ne d or noti ce s hall be s er ve d t o all s uc h e mpl oyees a nd pers o ns.

All ot her r el e va nt r e q ui r e me nt s s peci fie d under t hes e r e g ul ati o ns s hall be c o mpli e d w i t h.

Peri o di c pr ocess r e vi e w t o e val uat e eff ecti ve ness of s uc h i nt er nal c o nt r ol s

u The boar d of di r ect ors of e ver y li st e d c o mpa ny a nd t he boar d of di r ect ors or he a d of t he or ga ni z ati o n of i nt er me di ari es a nd fid uci ari es s hall e ns ur e t hat t he Chi ef Exec uti ve Of ficer or t he Ma nagi ng Di r ect or or s uc h ot her a nal og o us pers o n e ns ur es c o mpli a nce w i t h r e gar d t o i nt er nal c o nt r ol.

27. Answer the following with reference to SEBI Insider Trading Regulations by giving reasons:

(i) Does exercise of ESOPs/ESPS come under the definition of Trading under the Insider Trading Regulations?

(ii) Can a CFO, who has not reported to the Board of Directors, act as a Compliance Officer and update the Board on the transactions related to Insider Trading?

(iii) Can the company appoint more than one person as Compliance Officer under the regulation? [June 2022 (5 Marks)]

Ans.: (i ) Exer ci s e of ES OPs s hall not be c o nsi der e d t o be “t r a di ng” under t he I nsi der Re g ul ati o ns e xce pt f or t he p ur pos es of Cha pt er III whi c h de al s w i t h “ di s cl os ur es of t r a di ng by i nsi ders” Ho we ver, ot her pr ovi si o ns of t he Re g ul ati o ns s hall a ppl y t o t he s al e of s har es s o ac q ui r e d.

(ii ) Re g ul ati o n 2( c ) cl e arl y s peci fies t hat Co mpli a nce Of ficer me a ns a ny s e ni or of ficer, desi g nat e d s o a nd r e porti ng t o t he boar d of di r ect ors. Th us, CF O of t he c o mpa ny who i s not r e porti ng t o t he Boar d of Di r ect ors c a nnot act Co mpli a nce Of ficer under t he I nsi der Re g ul ati o ns.

(iii ) Re g ul ati o n 2( c ) cl e arl y pr ovi des t he f uncti o ns a nd r es po nsi bili ti es of t he c o mpli a nce of ficer. It i s c o mpa ny ’ s di s cr eti o n t o desi g nat e t wo s e par at e pers o ns as f or f ul filli ng s peci fie d r es po nsi bili ti es. Ho we ver, t he y s hall be hel d li a bl e j oi ntl y a nd s e ver all y. Th us, i t i s possi bl e t o a ppoi nt mor e t ha n o ne Co mpli a nce Of ficer under t he I nsi der Re g ul ati o ns.

28. Ankur traded in shares of Sitez Ltd., a listed company. The trading plan was approved by compliance officer on May 19, 2022. Ankur comes to know on July 20, 2022 that this transaction involve unpublished price sensitive information.

(i) What will be the impact on the transactions of Ankur?

(ii) What conditions are attached to the trading plan?

[Dec. 2022 (5 Marks)]

Ans.: Re g ul ati o n 4 of t he S E BI ( Pr o hi bi ti o n of I nsi der Tr a di ng) Re g ul ati o n, 2015 pr ovi des t hat I nsi der s hall not t r a de i n s ec uri ti es t hat ar e li st e d or pr opos e d t o be li st e d o n a st oc k e xc ha nge whe n i n poss essi o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n.

Whe n a pers o n who has t r a de d i n s ec uri ti es has bee n i n poss essi o n of unp ubli s he d pri ce s e nsi ti ve i nf or mati o n, hi s t r a des wo ul d be pr es u me d t o have bee n moti vat e d by t he k no w l e dge a nd a war e ness of s uc h i nf or mati o n i n hi s poss essi o n.

Ho we ver, I nsi der may pr ove hi s i nnoce nce by de mo nst r ati ng t hat t r a des wer e p urs ua nt t o a t r a di ng pl a n s et up i n acc or da nce w i t h Re g ul ati o n 5

As per r e g ul ati o n 5, a t r a di ng pl a n f or mu

l at e by i nsi der i s s ubj ect t o f oll o w i ng c o ndi ti o ns:

Conditions attached to trading plan:

u

u

Tr a di ng as per t r a di ng pl a n c a n be c o mme nce d aft er 6 mo nt hs f r o mt he dat e of p ubli c di s cl os ur e of s uc h t r a di ng pl a n

Tr a di ng as per t r a di ng pl a n c a nnot be e xec ut e d 20t h t r a di ng day pri or t o l ast day of a ny fina nci al peri o d a nd t he 2 nd t r a di ng day aft er t he di s - cl os ur e of s uc h fina nci al r es ul t s.

(Logic is that 20th day earlier to close of financial period the company has to announce financial results)

Tr a di ng pl a n s ho ul d not be l ess t ha n 12 mo nt hs.

u

u

u

T wo t r a di ng pl a n s ho ul d not overl a p e ac h ot her (In other words, second trading plan cannot be started unless first trading plan ends)

Suc h t r a di ng pl a n s hall s et o ut ei t her t he val ue of t r a des t o be eff ect e d or t he n u mber of s ec uri ti es t o be t r a de d al o ng w i t h t he nat ur e of t he t r a de a nd t he i nt er val s at, or dat es o n whi c h s uc h t r a des s hall be eff ect e d.

Tr a di ng pl a n s hall not be us e d f or t r a di ng i n s ec uri ti es f or mar ket a b us e.

u

Securities Law & Capital Markets (SLCM) | CRACKER

AUTHOR : N.S. ZAD

PUBLISHER : TAXMANN

DATE OF PUBLICATION : JANUARY 2023

EDITION : 8TH EDITION

ISBN NO : 9789356225749

NO. OF PAGES : 422

BINDING TYPE : PAPERBACK

Description

Rs. 375 | USD 33

This book is prepared exclusively for the Executive Level of Company Secretary Examination requirement. It covers the questions (topic-wise) & detailed answers strictly as per the syllabus of ICSI.

The Present Publication is the 8th Edition for CS-Executive | June/Dec. 2023 Exams. This book is authored by CS N.S. Zad, with the following noteworthy features:

u Strictly as per the New Syllabus of ICSI

u Coverage of the book includes

 Fully-Solved Questions of Past Exams

 Solved Paper: Dec. 2022 | New Syllabus

u [Topic-wise] arrangement of past exam questions & answers

u [Most Amended & Updated] Covers the latest applicable provisions and amendments under the Companies Act, 2013 & SEBI Regulations

u [Marks Distribution] Chapter-wise marks distribution from June 2013 onwards

u [Previous Exam Trend Analysis] from June 2021 onwards

u [ICSI Study Material] Chapter-wise comparison for past exams

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