Vallabh Joshi

Summary: Under the SEBI (Prohibition of Insider Trading) Regulations, 2015, companies are not explicitly required to monitor the transactions of designated persons after their resignation. However, SEBI has clarified in an FAQ dated March 31, 2023 that companies must maintain updated contact details of appointees for one year after resignation and retain this data for five years. If a designated person has unpublished price sensitive information (UPSI) at the time of their departure, their name remains in the company’s structured digital database as they may still hold this sensitive information. Consequently, their PAN is exempt from mandatory freezing checks, potentially allowing exchanges. SEBI guidelines imply that while the organization must maintain contact records, it is the responsibility of the former nominee to avoid dealing in the company’s securities until the UPSI becomes public. If such a person trades, he or she must justify his or her actions, with the burden of proving that he or she did not misuse UPSI.

Background

Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (“SEBI PIT”) does not specify whether the business activities of the appointees and their immediate relatives should be monitored after their resignation. Securities and Exchange Board of India (“SEBI”) in its FAQ dated March 31, 2023(1) a to FAQ no. 48 stated that “In the event of resignation from the service of a nominated person, a company/intermediary/trustee shall keep the address and contact details of such nominated person up to date. The company/intermediary/trustee should endeavor to keep the address and contact details of such persons up to date for one year after their resignation from office. This data must be kept by the company/intermediary/fiduciary for a period of 5 years.“.

If a designated person is in possession of unpublished price sensitive information at the time of his or her resignation (i.e. at the time of withdrawal from the listed company) and such unpublished price sensitive information does not are not yet made public, then the question is whether the transactions of these designated persons should be tracked or as specified in the SEBI FAQ, only the updated address and contact details should be maintained?

Analysis

According to SEBI FAQ no. 48, as noted above, in the event of resignation, the updated address and contract details of the designated individuals must be retained for six months. The additional name of such designated person will continue to be part of the structured digital database maintained under SEBI PIT Regulation 3(5) as they will still have access to UPSI. So, even if a person is relieved of the services of the listed company, he will continue to be in possession of the UPSI until such UPSI becomes public. After his resignation as a designated person, his PAN would be removed from the mandatory freezing scheme.

This leads to a tricky situation. It is advisable to avoid trading in securities of listed entities. It should also be borne in mind that in such scenarios, if the related person (i.e. the designated person who has resigned from the listed entity) trades in the securities of the listed entity, it will then be responsible for justifying its transactions in the securities of the listed entity. listed entity(2).

(1) Complete FAQ on SEBI (PIT) Regulations 2015

(2) In the case of related persons, the onus would be on such related persons to establish that they were not in possession of unpublished price-sensitive information and, in other cases, the onus would be on the Board of Directors.