Sebi, industry officials seek common ground as differences on UPSI arise

Industry officials say the proposed change may bring confusion to what all is categorised as price-sensitive information along with compliance burden

India Inc and compliance officers have taken exception to the market regulator’s proposal to widen the definition of Unpublished Price Sensitive Information (UPSI) to curb insider trading, with many even calling it a step backwards and a move that will burden both Sebi and the companies.

The Securities and Exchange Board of India (Sebi) has proposed to link the definition of UPSI to material events defined under the Listing Obligations and Disclosure Requirements (LODR) Regulations. The change would mean that the restriction on trading while in possession of UPSI under the prohibition of insider trading norms would apply to a greater number of events.  

“This change, if implemented, in its present form, is likely to create practical challenges both for companies and regulators, as all material events (on the basis of proposed threshold) would essentially have to be categorised as UPSI even though such events may not be price-sensitive. Thus, the  Prohibition of Insider Trading (PIT) regulations vis-a-vis categorisation of UPSI might end up losing their essence as the main criteria would become materiality (basis prescribed threshold, which may not find favour with each corporate) rather than price sensitivity. Sebi floated a consultation paper on the proposal on May 18 and has sought comments from the stakeholders by June 2,” said Harish Kumar, partner, Luthra & Luthra Law Offices India.

The queries in discussions between the compliance officers and company secretaries have been focused around what would constitute as a UPSI, at what stage would the information become a UPSI, which disclosures to release, the increase in data feeding, internal training of employees or even widening of the employee base covered under UPSI, among a host of other questions.

“The dichotomy in material information and UPSI must end. There is confusion on whether a show-cause notice received is a UPSI or not, at what stage an acquisition related information will be UPSI, and will a launch of a product variant be categorised as a material event. Sebi currently has an informal guidance mechanism but it takes a longer time and not every query can be run through it,” said a company secretary.  

“This is not the end of the issues but a point from where the complexities start, even for Sebi. The regulator should test the water first with these proposals. The contemplations should not be disregarded,” said another company official.

Further, Sebi has also introduced thresholds for classifying material events which have traditionally been information like buybacks, bonus issuance, board decisions, agreements, proposed fundraising, and changes in key managerial people to the stock exchanges.

Sebi’s aim with the proposal is to bring greater clarity and uniformity of compliance under PIT norms as listed companies were following varying judgement in the classification which crimped efforts towards curbing insider trading.

“This is a positive modification as it will provide regulatory certainty and uniformity for businesses, while also recognising identified cases as UPSI. However, adapting the definition of 'materiality' from the LODR Regulations to the PIT Regulations would require proper sensitisation of the stakeholders, as the definition of UPSI under the proposed regime would be diverse and wide,” said Nihal Bhardwaj, Associate, SKV Law Offices.