The Securities and Exchange Board of India (Sebi) has proposed to widen the definition of undisclosed price-sensitive information (UPSI) to ensure better information symmetry and curb potential insider trading.
Sebi said its surveillance system also generated a significant number of alerts on suspected insider trading cases where it was observed that a substantial number of entities made notional profits, sometimes exceeding even ~25 crore.
In a consultation paper floated on Thursday, the capital markets regulator has proposed to link the definition of UPSI to the material events defined under the Sebi (Listing Obligations and Disclosure Requirements, or LODR) Regulations.
LODR Regulations require listed companies to disclose material events or information like buybacks, bonus issuance, board decisions, agreements, proposed fundraising, and changes in key managerial people to the stock exchanges.
With this proposal, such material disclosures would be categorised as UPSI and would be subject to stricter norms around the prohibition of insider trading (PIT).
At its last board meeting on March 29, Sebi had introduced quantitative thresholds for determining the ‘materiality’ of events, information and disclosures, stricter timelines for disclosures, and verification of market rumours by the top 100 listed companies.
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With the rationalisation of ‘materiality’, the scope of UPSI would be widened further, said experts.
The proposal to broaden the definition of price-sensitive information comes on the back of Sebi’s study which showed lack of proper judgement and prudence exercised by India Inc.
Sebi analysed 1,100 press releases issued by the top 100 listed companies between January 2021 and September 2022. It found that in 227 instances, there was significant movement in the company’s stock price, following the issue of the press release.
Of these 227 instances, 209 press releases were not categorised as UPSI. Only 1.64 per cent of the total press releases analysed were categorised as UPSI by listed companies.
The press releases under the analysis were related to the announcements on sales, strategic tie-ups, potential investments, regulatory approvals, and expansions, including brand acquisitions and product launches.
“The judgement exercised by the listed entities in terms of categorising information or announcement as UPSI and consequent compliance with the spirit of the law, are not found to be adequate,” Sebi said in a discussion paper.
The widening of the scope of definition of UPSI will bring greater clarity and uniformity of compliance under PIT norms.
At present, the UPSI definition is included but not limited to financial results, dividends, mergers, demergers, changes in capital structure and business expansions — all key events that can impact stock prices.
“On multiple instances, it has been observed that an information/event which should have been categorised as UPSI was not done so by the listed entity,” said Sebi, citing examples where price movement of as much as 6 per cent was seen following an announcement which was not UPSI under the current definition.
The regulator feels its efforts towards curbing insider trading are getting crimped by the non-categorisation of material information.
“In case of alleged insider trading by an employee of a company, the employee contended that if the company itself did not consider the information as UPSI, how could the employee have considered it to be so? This highlighted the fact that companies were not exercising due care in the matter,” notes the consultation paper.
The regulator has sought comments on the proposal by June 2.