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The Securities and Exchange Board of India (Sebi) has proposed a significant revamp of the “trading plan” framework, which would allow insiders to trade their company shares with greater flexibility. The proposed changes include the elimination of the “black-out” period, a reduction in the cool-off period, and relatively lenient price limits.
Insiders, typically senior management and key managerial personnel who often have access to unpublished price-sensitive information (UPSI), have a small window to carry out trades in their company shares; they are required to submit a “trading plan” detailing the share price, quantity, and transaction date in advance.
“Since the introduction of trading plans in 2015, data and market feedback suggest that the current regulatory requirements in respect of trading plans are onerous and consequently, trading plans are not very popular,” according to a discussion paper posted on the markets regulator’s website on Friday.
Sebi’s proposal includes reducing the minimum cool-off period between the disclosure and implementation of the trading plan from six months to four months.
It has also recommended shortening the coverage period from 12 months to two months, removal of the black-out period, and setting a 20 per cent price range for buying or selling trades in the trading plan (TP).
“Such price limit shall be within +/-20 per cent of the closing price on the date of submission of TP. If the price of the security, during execution, is outside the price limit set by the insider, the trade shall not be executed. If no price limit is opted for, the trade has to be undertaken irrespective of the prevailing price,” noted Sebi.
As employee stock options form a significant part of the compensation for key managerial personnel (KMPs), industry experts believe these changes would provide relief for senior management. Makarand M Joshi, founder of MMJC & Associates, said: “Finally, a breather is proposed for all CXOs possessing wealth but unable to unlock it due to stringent norms under PIT (prohibition of insider trading) regulations. This will encourage CXOs to participate in companies’ ESOP schemes, as there are currently many restrictions on share selling.”
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SEBI has also suggested an alternative disclosure of the trading plan to keep some personal information of KMPs confidential. “To counter any concerns of possible misuse arising from masking of names from the public, a unique identifier which is a common reference number with a time stamp may be put on these filings for reconciliation purposes,” said Sebi.
The recommendations have been submitted by a working group constituted by the market regulator with members of Sebi, stock exchanges, and corporates. Sebi has sought comments from the public and stakeholders by December 15.
