Skip to main content

Company insiders cold to Sebi’s trading plans

By
Almost a year after the Securities and Exchange Board of India introduced trading plans to enable promoters and other persons holding possible insider information to trade, hardly any companies have stepped forward to formulate these plans.
Trading plans were introduced on an experimental basis whereby every insider is entitled to execute trades in pursuance of a pre- determined and pre- disclosed plan.
The idea was to encourage compliant trading by promoters and key managerial persons, similar to Rule 10b5- 1 plans in the US.
These plans cover all connected persons, defined as any person who has a connection with the company that is expected to put him in possession of unpublished price sensitive information. At present, most companies follow the model code of conduct for prevention of insider trading, which has to be formulated by every listed company.
There are several guidelines that have made these plans unpopular. For instance, the trading plan has to cover a period of at least 12 months and cannot be altered once disclosed. “ The condition that disallows any deviation from the trading plan once announced could lead to a scenario where the insider will be forced to trade even if he incurs loss on a particular trade,” said Sudhir Bassi, executive director, Khaitan & Co.
Adds Vaneesa Agrawal, a securities lawyer: “ Since these plans are irrevocable, their commercial viability is marred.” The trading plan has to be disclosed upfront to the exchanges. This could impact the price movement of the company’s stock as investors privy to the publicly disclosed plan could take a directional call on trading in the scrip, said experts. Say, a promoter makes aplan to buy 500,000 shares six months on. Since the plan is irrevocable, persons aware of this information can buy shares ahead of the promoter’s purchase.
“In the US, trading plans have been misused as company executives can retain the option to cancel the plans at a later date based on their discretion. So in the Indian market, the regulator has decided to proceed cautiously and be more conservative in its approach,” said a Sebi official on the condition of anonymity.
He added the main problem in India was promoters did not want to disclose the nature of the trade as they felt the information could be misused by others. “ The trade of the promoter itself can become an ‘ insider’ information that can be used for front running,” said the official.
There is a mandatory cooling off period of six months, which means that trading can begin only after six months from the date of public disclosure.
Even after this, an insider can’t trade if the information is still deemed to be unpublished price sensitive.
“This defeats the purpose of the plan to some extent since even the insiders who do not opt for trading plans can trade in the absence of their being in possession of unpublished price sensitive information and by following the code of conduct formulated by the listed company,” said Tejesh Chitlangi, partner, IC Legal.
Business Standard New Delhi, 4th May 2016

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more