The SEBI (Prohibition of Insider Trading) Regulations, 2015, aim to prevent unfair trading by defining “Designated Persons” with access to Unpublished Price Sensitive Information (UPSI). These individuals face strict compliance requirements, including maintaining databases, adhering to trading windows, and avoiding contra trades. Non-compliance can lead to substantial penalties.
1. Introduction
The Securities and Exchange Board of India (SEBI) has laid out strict regulations under the SEBI (Prohibition of Insider Trading) Regulations, 2015, to prevent unfair trading practices and protect investor interests. One key concept in these regulations is the identification and compliance of “Designated Persons” within a listed company, intermediary or fiduciary.
2. Who is a Designated Person?
A Designated Person refers to individuals who are more likely to have access to Unpublished Price Sensitive Information (UPSI) by virtue of their role, position, or relationship within a company.
As per Regulation 9(4) of SEBI (PIT) Regulations, Designated Persons include:
- Promoters of the listed company.
- Employees of the company, intermediary, fiduciary and its material subsidiaries based on role and function.
- Employees of the intermediary or fiduciary designated on the basis of access to UPSI.
- CEO and employees upto two levels below CEO of listed company, intermediary, fiduciary and material subsidiary on the basis of access to UPSI.
- Support staff such as IT and secretarial employees who have access to UPSI.
3. Why SEBI Focuses on Designated Persons
SEBI’s focus is to ensure that those with access to sensitive information do not misuse it for personal gain or allow others to do so. Designated persons are thus subjected to additional monitoring and compliance norms.
4. Compliance Requirements for Designated Persons
Listed entities, fiduciaries and intermediaries must ensure that designated persons:
a. Maintain a Structured Digital Database (SDD):
- Details of UPSI shared with designated persons must be logged.
b. Submit Annual and Periodic Disclosures:
- Annual statement of holdings.
- Details of trades conducted in securities of the company.
- Disclosures upon joining or cessation.
c. Abide by Trading Window Norms:
- Can only trade during open trading windows and upto the threshold limit specified by the Company.
- Trading is restricted during blackout periods (e.g., before result announcements).
d. Obtain Pre-clearance for Trades:
- Pre-approval must be taken for any trade above threshold limits.
e. Comply with Code of Conduct:
- The organization must frame a code that binds designated persons and lays down do’s and don’ts.
5. Additional Disclosures & Trading Windows
Immediate Relatives: Designated persons must disclose trading and holdings of their immediate relatives and those with whom they share a material financial relationship.
Material Financial Relationship: Defined as a relationship where one person is a recipient of any kind of payment (e.g., loan or gift) exceeding 25% of the annual income of the payer.
Trading Window Closure:
- Must be announced before UPSI events like financial results.
- Minimum closure period: From end of quarter till 48 hours after the declaration.
6. Contra Trade Restrictions for Designated Persons
Contra Trade Definition:
A contra trade refers to the sale or purchase of the same security within a short period, typically 6 months, in such a way that one trade opposes the previous one. For example, selling shares bought earlier within a 6-month window is considered a contra trade.
Contra Trade Restrictions:
Designated persons are prohibited from engaging in contra trades for a period of 6 months.
If a designated person buys shares, they must hold them for a minimum of 6 months before selling. Similarly, they cannot buy the same shares within this period after selling them.
This restriction is aimed at preventing the misuse of UPSI and reducing the chances of illegal profit-making from insider information.
7. Penalties for Non-Compliance
SEBI has the authority to impose heavy penalties, including:
- Monetary fines up to Rs. 25 crores or 3 times the profit made, whichever is higher.
- Debarment from accessing securities market.
- Criminal prosecution in severe cases.
8. Conclusion
The concept of Designated Persons under insider trading regulations is a preventive step toward ethical and transparent corporate governance. Listed entities must educate, monitor, and obtain necessary declarations from such individuals to stay compliant and maintain market integrity.
9. FAQs
Q1. Can a Designated Person trade in company shares?
Yes, but only when the trading window is open and subject to pre-clearance, if applicable.
Q2. Who monitors the trades of Designated Persons?
The Compliance Officer appointed under the Code of Conduct monitors all such trades.
Q3. What if a Designated Person unknowingly violates the code?
Even unintentional violations are penalized, though the quantum may vary based on severity and intent.
Q4. How often should disclosures be made?
Disclosures are periodic (annual, quarterly) and event-based (e.g., change in holding, joining/leaving company).
Q5. Can former employees be Designated Persons?
Yes, if they had access to UPSI during the relevant period of trade.
Stay compliant, stay informed.
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