Background of PIT Regulations
SEBI has worked hard, from inception, to reduce, if not entirely eliminate, Insider Trading. The first Prohibition of Insider Trading Regulations was issued in 1992. But from April 1, 2019, SEBI mandated that all listed companies must maintain a Structured Digital Database (SDD), to record the creation and movement of Unpublished Price Sensitive Information (UPSI) among the company’s Designated Persons (DPs) and their Connected Persons (CPs) – aka Insiders. The company must ensure these people don’t trade in the company’s listed scrip when they have UPSI. The Company Secretary, usually the Compliance Officer (CO), must implement this regulation, and the Secretarial Auditors are asked to confirm this compliance in their periodic reports. A non-formal study reveals that many companies are yet to comply.
On April 28, 2021, Aptech Ltd was penalized with Rs 1 crore for PIT violations conducted in 2016. On August 25, 2021, SEBI penalized 6 employees of Titan Ltd, Rs 1 lakh each, for Insider Trading violations on 2 separate occasions in 2018-19. The action was based on the information given by the company itself. The gap between violation and penal action is reducing.
Since it is more than 30 months since the regulation became mandatory, it is expected that SEBI will tighten checking, and penalties will likely increase on both companies and individuals, in the coming weeks.
How will SEBI examine compliance?
Questions SEBI could ask are simple:
Expected answers can be gleaned from various clarificatory declarations and circulars issued by SEBI from time to time, till as recently as August 2021.
When could SEBI launch compliance inquiries?
SEBI, which we understand has just added more than 140 people in the last 2 quarters, should find it very effective to check PIT Compliance soon after Diwali.
What is the likely impact of non-compliance?
For any company that has not yet implemented an SDD, this quarter – October to December 2021 – is the best time window for implementing SDD. Delay beyond December 2021 could cause significant penalties. Over the past 2.5 years, anecdotal evidence indicates that the minimum penalty levied on companies was Rs 4 lakhs, and on individuals, it was Rs 1 lakh.
The maximum penalty could go as high as Rs 25 crores or 3 times the amount of profits generated from the violative trades, whichever is higher.
What is the best remedy to avoid action by SEBI against your company?
Please do not take shortcuts, fudge, or obfuscate. It is easy to be found out. Delay may at worst lead to a penalty. This is far better than being caught in a falsehood. That could be a disaster.
Absolutely the best action to prevent adverse action by SEBI –
Axar Digital Services was established by tech-savvy legal experts who sensed the gravity of SEBI’s PIT regulations and their periodic amendments. Hence, our InsiderLens software has a comprehensive set of features meant to help Compliance Officers (COs) and insiders in complying with SEBI regulations or your company Code of Conduct:
More than 30 months have passed since SEBI made SDDs mandatory. SEBI has significant power to take penal actions against non-compliers and trading offenders. Listed companies must prioritize senior stakeholder and company compliance, and ensure that all employees adhere to the company’s Code of Conduct. At Axar, we strive to work with ethically-driven organizations and offer complete digital solutions to streamline board management and governance through our compliance management software in India.
Connect with Axar to know how InsiderLens can be your company’s greatest compliance asset.