Regulation 5 - Trading Plans - Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015

Trading Plans. 5. (1) An insider shall be entitled to formulate a trading plan and present it to the compliance officer for approval and public disclosure pursuant to which trades may be carried out on his behalf in accordance with such plan. NOTE: This provision intends to give an option to persons who may be perpetually in possession of unpublished price sensitive information and enabling them to trade in securities in a compliant manner. This provision would enable the formulation of a trading plan by an insider to enable him to plan for trades to be executed in future. By doing so, the possession of unpublished price sensitive information when a trade under a trading plan is actually executed would not prohibit the execution of such trades that he had pre-decided even before the unpublished price sensitive information came into being. (2) Such trading plan shall: (i) not entail commencement of trading on behalf of the insider earlier than 2 [ one hundred and twenty calendar days ] from the public disclosure of the plan; NOTE: It is intended that to get the benefit of a trading plan, a cool-off period of 3 [ one hundred and twenty calendar days ] is necessary. 4 [ Companies declare their results quarterly and there exists a trading restriction, in terms of these Regulations, from quarter end to two days after declaration of quarterly result, which, it is seen, is generally a period of around one month for most companies. Thus, one hundred and twenty calendar days ] period is considered reasonably long for unpublished price sensitive information that is in possession of the insider when formulating the trading plan, to become generally available. It is also considered to be a reasonable period for a time lag in which new unpublished price sensitive information may come into being without adversely affecting the trading plan formulated earlier. In any case, it should be remembered that this is only a statutory cool-off period and would not grant immunity from action if the insider were to be in possession of the same unpublished price sensitive information both at the time of formulation of the plan and implementation of the same. (ii) 5 [ **** ] (iii) 6 [ **** ] (iv) not entail overlap of any period for which another trading plan is already in existence; NOTE: It is intended that it would be undesirable to have multiple trading plans operating during the same time period. Since it would be possible for an insider to time the publication of the unpublished price sensitive information to make it generally available instead of timing the trades, it is important not to have the ability to initiate more than one plan covering the same time period. (v) 7 [ set out following parameters for each trade to be executed: (i) either the value of trade to be effected or the number of securities to be traded; (ii) nature of the trade; (iii) either specific date or time period not exceeding five consecutive trading days; (iv) price limit, that is an upper price limit for a buy trade and a lower price limit for a sell trade, subject to the range as specified below: a. for a buy trade: the upper price limit shall be between the closing price on the day before submission of the trading plan and upto twenty per cent higher than such closing price; b. for a sell trade: the lower price limit shall be between the closing price on the day before submission of the trading plan and upto twenty per cent lower than such closing price. Explanation: (i) While the parameters in sub-clauses (i), (ii) and (iii) shall be mandatorily mentioned for each trade, the parameter in sub-clause (iv) shall be optional. (ii) The price limit in sub-clause (iv) shall be rounded off to the nearest numeral. (iii) Insider may make adjustments, with the approval of the compliance officer, in the number of securities and price limit in the event of corporate actions related to bonus issue and stock split occurring after the approval of trading plan and the same shall be notified on the stock exchanges on which securities are listed. ] NOTE: It is intended that while regulations should not be too prescriptive and rigid about what a trading plan should entail, they should stipulate certain basic parameters that a trading plan should conform to and within which, the plan may be formulated with full flexibility. The nature of the trades entailed in the trading plan i.e. acquisition or disposal should be set out. The trading plan may set out the value of securities or the number of securities to be invested or divested. Specific dates or specific time 8 [ period ] may be set out in the plan. 9 [ However, there should be an outer limit on the duration of the time period, so that while it allows the insider to split their trades across different dates, duration should not be so long that it is prone to misuse. Further, to protect the insider from unexpected price movements, he may, at the time of formulation of trading plan, provide price limits within the range specified in these Regulations. ] (vi) not entail trading in securities for market abuse. NOTE: Trading on the basis of such a trading plan would not grant absolute immunity from bringing proceedings for market abuse. For instance, in the event of manipulative timing of the release of unpublished price sensitive information to ensure that trading under a trading plan becomes lucrative in circumvention of regulation 4 being detected, it would be open to initiate proceedings for alleged breach of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 2003. (3) The compliance officer shall review the trading plan to assess whether the plan would have any potential for violation of these regulations and shall be entitled to seek such express undertakings as may be necessary to enable such assessment and to approve and monitor the implementation of the plan. 1 [ Provided that pre-clearance of trades shall not be required for a trade executed as per an approved trading plan. Provided further that trading window norms 10 [ **** ] shall not be applicable for trades carried out in accordance with an approved trading plan. ] NOTE: It is intended that the compliance officer would have to review and approve the plan. For doing so, he may need the insider to declare that he is not in possession of unpublished price sensitive information or that he would ensure that any unpublished price sensitive information in his possession becomes generally available before he commences executing his trades. Once satisfied, he may approve the trading plan, which would then have to be implemented in accordance with these regulations. (4) The trading plan once approved shall be irrevocable and the insider shall mandatorily have to implement the plan, without being entitled to either 11 [ **** ] execute any trade in the securities outside the scope of the trading plan 12 [ or to deviate from it except due to permanent incapacity or bankruptcy or operation of law ] . Provided that the implementation of the trading plan shall not be commenced if any unpublished price sensitive information in possession of the insider at the time of formulation of the plan has not become generally available at the time of the commencement of implementation 13 [ **** ] . 14 [ Provided further that if the insider has set a price limit for a trade under sub-clause (iv) of clause (v) of sub-regulation 2, the insider shall execute the trade only if the execution price of the security is within such limit. If price of the security is outside the price limit set by the insider, the trade shall not be executed. Explanation : In case of non-implementation (full/partial) of trading plan due to either reasons enumerated in sub-regulation 4 or failure of execution of trade due to inadequate liquidity in the scrip, the following procedure shall be adopted: (i) The insider shall intimate non-implementation (full/partial) of trading plan to the compliance officer within two trading days of end of tenure of the trading plan with reasons thereof and supporting documents, if any. (ii) Upon receipt of information from the insider, the compliance officer, shall place such information along with his recommendation to accept or reject the submissions of the insider, before the Audit Committee in the immediate next meeting. The Audit Committee shall decide whether such non-implementation (full/partial) was bona fide or not. (iii) The decision of the Audit Committee shall be notified by the compliance officer on the same day to the stock exchanges on which the securities are listed. (iv) In case the Audit Committee does not accept the submissions made by the insider, then the compliance officer shall take action as per the Code of Conduct. ] NOTE: It is intended that since the trading plan is an exception to the general rule that an insider should not trade when in possession of unpublished price sensitive information, changing the plan or trading outside the same would negate the intent behind the exception. Other investors in the market, too, would factor the impact of the trading plan on their own trading decisions and in price discovery. Therefore, it is not fair or desirable to permit the insider to deviate from the trading plan based on which others in the market have assessed their views on the securities 15 [ except in situations beyond the control of the insider ] . The 16 [ first ] proviso is intended to address the prospect that despite the 17 [ one hundred and twenty calendar days ] gap between the formulation of the trading plan and its commencement, the unpublished price sensitive information in possession of the insider is still not generally available. In such a situation, commencement of the plan would conflict with the over-riding principle that trades should not be executed when in possession of such information. If the very same unpublished price sensitive information is still in the insider s possession, the 18 [ execution of the trading plan should not be commenced. ] . 19 [ The second proviso is intended to address the scenario where the insider has set a price limit for a trade and due to adverse fluctuation in market prices, the price of the security is outside the price limit set by the insider, the trade shall not be executed. However, if the insider wishes to trade irrespective of the fluctuation in market price, he may not set any price limit at the time of formulation of the trading plan. ] (5) 20 [ The compliance officer shall approve or reject the trading plan within two trading days of receipt of the trading plan and notify the approved plan to the stock exchanges on which the securities are listed, on the day of approval. ] NOTE: It is intended that given the material exception to the prohibitory rule in regulation 4, a trading plan is required to be publicly disseminated. Investors in the market at large would also factor the potential pointers in the trading plan in their own assessment of the securities and price discovery for them on the premise of how the insiders perceive the prospects or approach the securities in their trading plan. *************** NOTES:- 1. Inserted vide SEBI/LAD-NRO/GN/2018/59 Dated 31-12-2018 w.e.f. 01-04-2019 2. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, six months 3. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, six months 4. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, Such a 5. Omitted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, (ii) not entail trading for the period between the twentieth trading day prior to the last day of any financial period for which results are required to be announced by the issuer of the securities and the second trading day after the disclosure of such financial results; NOTE: Since the trading plan is envisaged to be an exception to the general rule prohibiting trading by insiders when in possession of unpublished price sensitive information, it is important that the trading plan does not entail trading for a reasonable period around the declaration of financial results as that would generate unpublished price sensitive information. 6. Omitted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, (iii) entail trading for a period of not less than twelve months; NOTE: It is intended that it would be undesirable to have frequent announcements of trading plans for short periods of time rendering meaningless the defence of a reasonable time gap between the decision to trade and the actual trade. Hence it is felt that a reasonable time would be twelve months. 7. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, set out either the value of trades to be effected or the number of securities to be traded along with the nature of the trade and the intervals at, or dates on which such trades shall be effected; and 8. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, intervals 9. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) 10. Omitted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, and restrictions on contra trade 11. Omitted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, deviate from it or to 12. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) 13. Omitted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, and in such event the compliance officer shall confirm that the commencement ought to be deferred until such unpublished price sensitive information becomes generally available information so as to avoid a violation of sub-regulation (1) of regulation 4 14. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) 15. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) 16. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) 17. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, six-month 18. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, commencement of execution of the trading plan ought to be deferred 19. Inserted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) 20. Substituted vide Notification No. SEBI/LAD-NRO/GN/2024/184 dated 25-06-2024 (shall come into force on the ninetieth day from the date of their publication in the Official Gazette) before it was read as, Upon approval of the trading plan, the compliance officer shall notify the plan to the stock exchanges on which the securities are listed.