The Securities and Exchange Board of India (SEBI) introduced significant amendments to the SEBI (Prohibition of Insider Trading) Regulations, 2015 (SEBI PIT Regulations) effective from September 24, 2024, fundamentally changing how trading plans operate under Regulation 5. These changes have far-reaching implications for corporate insiders seeking compliant trading mechanisms.
What is a Trading Plan Under SEBI PIT Regulations?
A trading plan under SEBI PIT Regulation 5 is a pre-approved framework that allows designated persons and their immediate relatives to trade in securities while maintaining compliance with insider trading regulations. The plan serves as a safe harbor mechanism, enabling legitimate trading activities while preventing misuse of unpublished price-sensitive information (UPSI).
Key Features of SEBI Trading Plans
The trading plan mechanism provides several critical protections:
- Pre-determination of trades: All trading activities must be specified in advance, including quantity, price parameters, and timing
- Cooling-off period: Mandatory waiting periods between plan formulation and execution
- UPSI protection: Plans cannot be modified or cancelled when in possession of material non-public information
- Regulatory compliance: Automatic adherence to insider trading prohibitions when properly implemented
- Perpetual possession of UPSI: Trading plan enables the persons who are perpetually in possession of UPSI, to trade in the securities of the Company.
September 24, 2024 Amendments: What Changed?
The latest amendments to SEBI PIT Regulation 5 introduced several pivotal changes that enhance market integrity while providing greater flexibility for execution of trading plan.
Modified Cooling-Off Periods
The amendments revised the cooling-off period framework, relaxing tiered waiting periods for the proposed transactions. The cooling period reduced to 120 calendar days instead of earlier six months. This means trading plans cannot commence execution until 120 calendar days have passed from the public disclosure of the plan, providing a buffer period for any UPSI to become publicly available.
Removal of Quarterly Blackout Period Restrictions
The amendment omitted the requirement that trading plans could not be executed during the period between the twentieth trading day prior to the last day of any financial period and the second trading day after disclosure of financial results. This removal provides greater flexibility for continuous execution of trading plans without quarterly interruptions.
Elimination of Minimum 12-Month Duration Requirement
Previously, trading plans were required to have a minimum duration of 12 months. The September 2024 amendment removed this mandatory minimum period, allowing for more flexible and shorter-duration trading plans based on individual requirements. The amendment now permits execution on a specific date or time period not exceeding 5 consecutive trading days.
Introduction of Detailed Trade Parameters
The amendments introduced comprehensive specifications for each trade within a trading plan, requiring:
- Value or quantity specification: Either the value of trade or number of securities to be traded
- Nature of trade: Clear identification as buy or sell transactions
- Time specification: Either specific dates or time periods not exceeding five consecutive trading days
- Optional price limits: Upper price limits for buy trades and lower price limits for sell trades within a 20% range of the closing price on the day before plan submission
Enhanced Price Limit Framework
The amendment introduced a sophisticated price limit system where:
- Buy trades: Upper price limit between closing price and up to 20% higher
- Sell trades: Lower price limit between closing price and up to 20% lower
- Flexibility provision: Price limits are optional, allowing insiders to choose market execution if the price of security falls within the limit specified by the insider while formulation of plan
- Corporate action adjustments: Automatic adjustments for bonus issues and stock splits with compliance officer approval
Streamlined Compliance Officer Approval Process
The amendment mandates that compliance officers must approve or reject trading plans within two trading days of receipt, significantly reducing approval timelines and providing certainty to plan applicants.
Exemption from Pre-clearance and Trading Window Restrictions
Trading plans now enjoy automatic exemption from pre-clearance requirements and trading window restrictions, streamlining the execution process for approved plans while maintaining regulatory oversight.
Enhanced Non-Implementation Procedures
The amendment introduced detailed procedures for situations where trading plans cannot be fully implemented, including:
- Mandatory reporting to compliance officers within two trading days of plan tenure end
- Audit Committee review of non-implementation cases
- Stock exchange notification of Audit Committee decisions
- Clear distinction between bona fide and non-compliant non-implementation
Irrevocability with Limited Exceptions
While maintaining the principle that approved trading plans are irrevocable, the amendment clarified that deviations are only permitted in cases of permanent incapacity, bankruptcy, or operation of law, or due to inadequate liquidity in the scrip, providing legal certainty while maintaining plan integrity.
Implementation of the trading plan shall not be commenced if any UPSI 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.
Insider shall execute the trade only if the execution price of the security is within the limit specified by him at the time of formulation of plan.
Who Must Comply with Trading Plan Requirements?
Persons who may be perpetually in possession of UPSI and wants to trade in securities of the Company in a compliant manner. The Insider needs to ensure that he/ she trades in the securities of the Company only when the UPSI in his possession at the time of formulation of trading Plan has become public.
How to Create a Compliant Trading Plan
Step 1: Pre-Plan Documentation
Begin by documenting your trading objectives, risk parameters, and investment horizon. The plan must specify exact quantities or value of proposed trade, price ranges (if any), and execution timelines for all proposed transactions.
Step 2: Regulatory Approval Process
Submit your trading plan to the designated compliance officer of your organization. The plan undergoes thorough review to ensure alignment with regulatory requirements and internal policies.
Step 3: Cooling-Off Period Compliance
Wait for the mandatory cooling-off period to elapse before initiating any trading activities. The duration varies based on transaction size and participant category under the amended regulations.
Step 4: Execution and Monitoring
Execute trades strictly according to the approved plan parameters. Any deviations require immediate reporting and may necessitate plan suspension or modification through proper channels.
Conclusion
The September 24, 2024 amendments to SEBI PIT Regulation 5 mark a significant evolution in India’s insider trading regulatory framework. These changes enhance market integrity while providing clearer guidance for compliant trading activities. Market participants must adapt their compliance strategies to align with the enhanced requirements while leveraging the benefits of the improved regulatory framework.
Success in the post-amendment environment requires proactive compliance planning, robust documentation practices, and ongoing engagement with qualified professionals. Organizations that embrace these changes will benefit from enhanced legal protection, improved market confidence, and more efficient operational frameworks.
The key to successful compliance lies in understanding the nuanced requirements of the amended regulations and implementing comprehensive trading plans that balance regulatory adherence with legitimate business objectives. As the regulatory landscape continues evolving, staying informed about developments and maintaining flexible compliance strategies will be essential for all market participants.
Frequently Asked Questions (FAQs)
1. Whether contra trade is allowed within the duration of the trading plan?
No, Contra trade is not allowed within the duration of the trading plan.
2. Can I modify my trading plan after submission but before the cooling-off period ends?
No, trading plans remain irrevocable once approved. The September 2024 amendments maintain this principle, allowing deviations only in exceptional circumstances. Any changes require submission of a completely new trading plan with a fresh 120-day cooling-off period.
3. What happens if I possess UPSI after my trading plan is approved but before execution?
If at the time of formulation of trading plan, there was no UPSI and later on a new UPSI was generated, then trading can be carried out as per the trading plan, even if the new UPSI has not been made generally available
4. Are there minimum duration requirements for trading plans under the new amendments?
No, the September 24, 2024 amendments removed the previous 12-month minimum duration requirement. Trading plans can now be of any duration based on the insider’s requirements, providing much greater flexibility in plan structuring.
5. During trading window closure, whether trades pursuant to trading plan can be executed?
Yes, trading window restrictions shall not apply in respect of trades pursuant to a trading plan.
6. Can I set price limits in my trading plan, and are they mandatory?
Price limits are optional under the amended regulations. If you choose to set them:
- Buy trades: Upper limit between closing price and up to 20% higher
- Sell trades: Lower limit between closing price and up to 20% lower
- If market price moves outside your set limits, the trade will not execute
- If you prefer market execution regardless of price, simply don’t set price limits
7. How are corporate actions handled in existing trading plans?
The amendments allow automatic adjustments for bonus issues and stock splits with compliance officer approval. These adjustments in number of securities and price limits must be notified to the stock exchanges where securities are listed.
8. Can I have overlapping trading plans?
No, the regulations explicitly prohibit overlap of any period for which another trading plan already exists. This prevents potential manipulation through multiple simultaneous plans covering the same timeframe. Though, an insider may submit multiple trading plans simultaneously, provided the periods covered under such multiple trading plans do not overlap.
9. Are contra trade restrictions applicable to trades executed under two separate trading plans?
Yes, contra trade restrictions would be applicable to trades executed under two separate trading plans.
10. Can a KMP trade in the Company’s shares with pre – clearance alone or trading plan is necessary?
Yes, KMP can trade with pre-clearance alone, if not in possession of UPSI. However, if the code of conduct of the company mandates trading plan for persons who may be perpetually in possession of UPSI, such persons shall abide by such code of conduct.
This article provides general information about SEBI PIT Regulation 5 amendments and should not be considered as legal advice. Consult qualified legal and compliance professionals for specific guidance on your trading plan requirements.
Stox N Tax 
Leave a comment