The class of deemed insiders, on whom the onus lies to prove it is not guilty of insider trading has been widened, with the Sebi (Prohibition of Insider Trading) Regulations, 2014, in place. The regulator’s board met in Mumbai on Wednesday to approve changes to the earlier regulations.
The Securities and Exchange Board of India (Sebi) said the definition of insider had been made wider by including persons connected on the basis of being in any contractual, fiduciary or employment relationship. Immediate relatives will now be considered insiders as will any person who has access unpublished price-sensitive information (UPSI). Directors and employees of a company remain insiders.
In a slew of changes, the Securities and Exchange Board of India (Sebi) also amended the delisting regulations. A delisting can be now be considered successful if the shareholding of the acquirer together with the shares tendered by public shareholders hits 90% of the total share capital and if at least 25% of the number of public shareholders tender in the reverse book-building process (RBB).
Gautam Gupte, director, Ambit Corporate Finance, pointed out that asking a minimum of 25% public shareholders holding demat shares to participate could potentially make delistings more difficult because of the inherent lack of participation by small shareholders. However, others believe this would thwart moves by market operators to corner shares and tender them once the delisting was announced.
Most investment bankers, including Gupte, appreciated the option of making a direct delisting offer instead of a mandatory open offer under Takeover Regulations pursuant to an acquisition, though they wanted more details. Most bankers believe that companies would not mind making the mandatory open offer if the delisting failed and paying interest of 10% per annum due to the delay.
The proposal to use the stock exchange platform to avail of securities transaction tax benefits was also applauded.
The Sebi board also approved a proposal to review the policy that restricts persons or entities categorised as wilful defaulters from raising capital after going through the public consultation process. To encourage investments in infrastructure, Sebi approved amendments to the FVCI Regulations to allow foreign venture capital investors (FVCIs) to invest in NBFC-CIC (core investment companies), as defined by Reserve Bank of India (RBI).
Explaining the term UPSI, Sebi said it refers to any information not generally available and which could impact the price of the shares. In instances where it is permissible to disclose UPSI, it must be done at least two days prior to a trade. The rules announced by the Sebi make no specific mention of whether public servants are ‘insiders’ .
Insiders, especially those likely to have access to UPSI all the year round, can now have trading plans on the lines of those prevalent in the US. Lalit Kumar, partner, J Sagar Associates, observed that it was good to see the regulator aligning Indian practices with those overseas and providing flexibility to insiders. Third-party connected persons must disclose holdings and trading in a company’s shares. Derivatives trading by directors and key managerial persons in securities of the company is prohibited.
Sebi has said that the offer price determined through RBB shall be the price at which the shareholding of the promoter, after including the shareholding of the public shareholders who have tendered their shares, reaches the threshold limit of 90%.
In order to prevent promoters from misbehaving, Sebi has mandated that the promoter or the promoter group will be barred from making a delisting offer if any entity of the group has sold shares of the company six months prior to the date on which the board approves the delisting proposal. Timelines for completing the delisting process have been reduced from 137 calendar days to 76 working days.
