Question 1.

Whether the following sequences of transactions if executed within six months would constitute contra trades under Schedule B of the SEBI (PIT) Regulations, 2015?

Answer:

Question 2.

Consider the following sequence of events:

A Designated Person had previously purchased 100 shares on the open market more than six months ago.

After the expiry of that six-month period, the person received an ESOP allotment, and those ESOP shares were subsequently pledged and un-pledged.

Now, within six months from the ESOP allotment, the person proposes to sell the earlier 100 market-purchased shares (not the ESOP shares).

In this situation, would the sale of the 100 market-purchased shares amount to a contra trade under the PIT Regulations, even though the ESOP shares were allotted, pledged, and un-pledged during this period?

Answer:

The DP’s purchase of 100 shares occurred more than six months ago, so the mandatory six-month period for that leg has already elapsed.

The pledge and un-pledge of ESOP shares do not result in change of beneficial ownership and therefore do not trigger contra-trade restrictions.

Accordingly, selling the earlier 100 market-purchased shares within six months of the ESOP allotment/pledge/un-pledge will not be considered a contra trade.

Question 3.

A promoter sold 1000 shares on April 01, 2025, in open market, later he acquires 100 shares on May 01, 2025 and 100 shares on June 01, 2025. Is this contra once or twice?

Answer:

Contra trade restrictions are applicable on date wise.[3] Promoter has sold shares on April 01, 2025, the person cannot take a reverse position for a period of 6 months from last leg of buy transaction.

Accordingly, the purchases dated May 01, 2025, and June 01, 2025 each independently amount to two separate contra trades in relation to the sale executed on April 01, 2025.

Question 4. 

A designated person was allotted 100 shares pursuant to the allotment of rights issue dated June 01, 2025. Later, on July 20, 2025, he was allotted 100 shares pursuant to exercise of ESOP. He intends to sell shares in open market on November 01, 2025. Can he do so?

Answer:

If the initial transaction is an acquisition by way of Rights issue, Follow-on Public Offer (FPO), Offer for Sale (OFS), Bonus issue, Share Split, Merger/Amalgamation, Demerger, then subsequent disposal of securities within 6 months from the date of initial transaction would be considered as a contra trade. Similarly, if the securities are disposed through Buy-back or Open offer, then subsequent acquisition of securities within 6 months from the date of initial transaction would be considered as a contra trade. [4]

Exercise of ESOP is not considered as trade. However, Allotment of securities by way of rights issue is a trade (Acquisition). Subsequent disposal/ sell in open market would amount to contra trade.

Question 5.

If a promoter sells shares in the open market and then, within six months, buys shares from another promoter through an inter-se transfer on the stock exchange, does this violate the PIT Regulations?

Further, if the same promoter, then wants to sell those acquired shares again in the open market within six months of the inter-se transfer, will this amount to a contra trade violation?[5]

Answer:

In case of a promoter who earlier sold shares in the open market and then buys shares from another promoter on the stock exchange by way of inter se transfer within six months, it will amount to contra trade as the defence available is for off-market inter-se transfers under the proviso to Regulation 4(1)(i).

Question 6.

If a promoter–director (Mr. P) holds shares in the company under multiple capacities:[6]

(i) his personal PAN,

(ii) as a trustee for his family,

(iii) as a trustee for other beneficiaries, and

(iv) as an executor of wills

then:

• Will he be treated as a designated person only for the shares held in his personal capacity, or for shares held in all capacities?
• If he is treated as a designated person for all capacities, will contra-trade restrictions apply collectively to all such holdings under his PAN?

Example: If he sells shares as an executor, is he barred from buying shares in his personal capacity within six months?

• Do contra-trade restrictions apply to shares held in a trust where Mr. P is not the PAN holder, but other trustees hold the shares?

Answer:

Regulation 9 (4) of the PIT Regulations, inter alia, specifies the persons to be identified as ‘designated person’ on the basis of role and function in the organization and the access that such role and function would provide to the unpublished price sensitive information (UPSI).

The term ‘designated person’ is wide enough to include any person having such role and function in the organization which would provide access to UPSI to such person in the opinion of the board of directors after consultation with the compliance officer. So Mr. P would be identified as a designated person by virtue of his role and access to UPSI.

Once a person is classified as a designated person the contra-trade restrictions under Clause 10 of Schedule B apply to all shares held under his PAN, regardless of the capacity in which he trades.

Hence in case of Mr P all securities held under his PAN, whether held:

• in his personal capacity,
• as a trustee for family members,
• as a trustee for other beneficiaries, or
• as an executor of wills,

buying and selling of same within six months would amount to contra trade.

Question 7.

A company listed on BSE, has issued warrants to its Promoters / Promoter Group. As part of a succession planning exercise, the Promoter Group now intends to move their entire shareholding both existing shares and shares that will arise on warrant conversion into their respective family trusts (“Transferee Trusts”).

The proposed steps are:

(a) converting the outstanding warrants into equity shares, and

(b) transferring shares off-market by way of gift among certain promoter family members so that the holdings are consolidated with Promoter X and Promoter Y.

In this context, Promoter Y seeks clarification on two points:

• If promoters receive shares on conversion of warrants, and then transfer those shares off-market to other promoters within six months, will this violate the contra-trade restrictions under the PIT Regulations?

• If promoters acquire shares from other promoters (either through off-market transfers or block deals), can they transfer those shares to their family trusts within six months, or would this be treated as a contra-trade violation?[7]

Answer:

First, when the promoters convert warrants into equity shares, that is treated as an acquisition (buy leg).

If they sell or transfer those shares (whether by inter-se off-market transfer or block deal) within six months of such conversion, this may amount to a contra trade, because it is an opposite transaction (sell) within six months of a buy.

Similarly, if promoters or members of the promoter group acquire shares through inter-se off-market transfers or block deals from other promoters, and then transfer those shares to acquirer/family trusts within six months, this may also attract contra-trade restrictions under the PIT Regulations.

Question 8.

Are PIT Regulations applicable on transmission of shares?

Answer:

Yes, PIT Regulations are applicable on transmission of shares. However, they are exempted from provisions of trading window closure, pre-clearance and contra trade, but the norms relating to disclosure requirements shall be applicable on transmission of Shares

Question 9.

Are contra trade restrictions applicable to trades executed under trading plan?

Answer:

Yes, contra trade restrictions are applicable in case of trading plan. Contra trade restrictions are also applicable to trades executed under two separate trading plans.[8]

Question 10.

Mr. A holds 1,50,000 equity shares of XYZ Ltd. in one Demat Account. He internally transfers 50,000 shares to Demat Account 2, both accounts being held under the same PAN and same beneficial ownership[9].

Answer:

A transfer between two Demat accounts held by the same individual with the same PAN does not amount to a change in beneficial ownership. It will not be treated as trading and disclosure requirement will not be applicable.

Question 11.

5,000 shares were allotted to Mr. V on November 18, 2025, pursuant to the exercise of ESOPs. Mr. V sold 500 ESOP-acquired shares on November 21, 2025. His father (an “immediate relative” as defined under the PIT Regulations) now wishes to purchase a few shares from the open market on November 27, 2025. Will this amount to a contra trade?

Answer:

Exercise of ESOPs is not regarded as a “trade” under the PIT Regulations, as clarified by SEBI through multiple Informal Guidance letters and FAQs. The subsequent sale of ESOP-acquired shares is, however, a “trade”, but it is not treated as a contra trade to the event of exercise of ESOP.

In this case, once Mr. V has sold 500 shares on November 21, 2025, any acquisition of shares by Mr. V or his immediate relative (his father) within six months of that sale will constitute a contra trade, since the contra period applies collectively for designated persons and their immediate relatives.

Question 12.

On November 11, 2025, Mr. P (designated person) acquired 500 shares. Whether sale of 500 shares by his wife who is not financially dependent on Mr. P will amount to contra trade?

Answer:

The definition of states that, “immediate relative” means a spouse of a person, …

Spouse of a person is deemed to be immediate relative irrespective of financial dependency or trading-decision influence.

Hence, sale of 500 shares by wife of Mr. P will amount to contra trade.

Question 13.

On November 11, 2025, Mr. P (designated person) acquired 500 shares. Whether sale of 500 shares by his father who is not financially dependent on Mr. P will amount to contra trade?

Answer:

The definition of states that, (f) “immediate relative” means a spouse of a person, and includes parent, sibling, and child of such person or of the spouse, any of whom is either dependent financially on such person, or consults such person in taking decisions relating to trading in securities; Spouse of a person is deemed to be immediate relative irrespective of financial dependency or trading-decision influence.

In case of parent, sibling and child financial dependency or trading-decision influence are essential elements.

Hence, sale of 500 shares by father of Mr. P will not amount to contra trade as his father is not immediate relative and not governed by code of conduct under PIT Regulations.

Question 14.

One individual promoter sells shares in June. Another individual member of the promoter group (but a different individual) wants to buy shares in August. Are contra trade restrictions applied to the promoter group collectively or only promoter-wise individually?

Answer:

As per the provisions of regulation 9 of the PIT Regulations and clause 3 of Schedule B to the PIT Regulations, the contra trade restrictions apply to trades made by promoters individually and not the entire promoter group. [10] Hence, taking SEBI’s view in the matter of Raghav Commercial Ltd. the restriction shall apply to each promoter individually. Hence contra trade restrictions would not be applicable

Question 15.

Two subsidiaries, Subsidiary X and Subsidiary Y, are both part of the same promoter group and fully controlled by the same parent. Subsidiary X buys shares of the listed company in January. Subsidiary Y wants to sell shares in March. Will the sale by Subsidiary Y be treated as a contra trade, given that both entities are under common control?[1]

Answer:

SEBI has given an informal guidance for a similar situation. In the matter of Rama Mines (Mauritius) Ltd. SEBI has stated that “when both subsidiary companies are ultimately controlled by the same parent entity, provision of contra trade restrictions shall apply. Hence in the given case Rama Mines (Mauritius) Ltd. (RMML) and Australian Indian Resources Ltd. (AIRL) are jointly controlled., if AIRL has purchased the shares… then restriction on contra trades shall apply to AIRL as well as RMML.” In simpler terms, the combined actions of entities or persons under a common control are treated together for the purpose of applying contra trade restrictions

Question 16.

Mr. A, an employee of XYZ Limited (a listed company), has been freely trading in the shares of XYZ as a normal employee.

On March 10, 2025, when he is not a Designated Person, he buys 1,000 shares of XYZ Limited.

With effect from June 01, 2025, Mr. A is identified as a Designated Person under the company’s Code of Conduct framed under Regulation 9 and Clause 10 of Schedule B of the SEBI (PIT) Regulations, 2015.

On July 02, 2025, Mr. A sells 1,000 shares of XYZ Limited.

Answer:

No, the sale on July 02, 2025, should not be treated as a contra trade to the buy on March 10, 2025, because the March trade was executed when Mr. A was not a Designated Person.

As per Clause 10 of Schedule B read with Regulation 9 of the SEBI (PIT) Regulations, the 6-month contra-trade restriction applies to Designated Persons.

SEBI in the matter of Marksans Pharma Limited[1] has noted that,

“I note that the restriction on executing contra trades becomes applicable when any person  becomes a Designated Person, as per the Code of Conduct of the company..

Since Noticee No. 1 became a Designated Person w.e.f. May 30, 2015, after the first Buy trade on 10/06/2015 for 100 shares, Noticee No. 1 could not have sold shares within a period of 6 months after this date..

.. However, any holding of the designated person prior to becoming the designated person would also need to be sold by him in a way that does not breach the contra trade norms after  he became the designated  person..” In simple way the trades executed before a person becomes a Designated Person should be excluded from contra-trade computation, though any holdings acquired prior to designation must thereafter be dealt with in a manner that does not breach the contra-trade norms going forward.

Question 17.

Mr. A, a Designated Person of XYZ Limited, executes multiple contra trades during the quarter. His trades result in a gross profit of ₹32,80,000, but after adjusting certain losses on other trades during the same period, his net profit comes to only ₹18,40,000.

Mr. A offers to disgorge only the net profit, claiming that losses should be set off against gains.

For the purpose of disgorgement of profits arising from contra trades under the PIT Regulations, should Mr. A be required to remit gross profit or net profit?

Answer:

Under Clause 10 of Schedule B to the SEBI (PIT) Regulations, the obligation to disgorge profits from contra trades refers to “profits from such trade”. In the matter of Swan Energy Limited[1], where SEBI directed the designated person to disgorge the entire gross profit of ₹30,25,133 arising from contra trades, despite the noticee having initially deposited only the net/actual gain. SEBI expressly required that the gross profit amount be remitted to the SEBI-IPEF

[1] https://www.sebi.gov.in/enforcement/informal-guidance/nov-2025/in-the-matter-of-welspun-corp-limited-under-sebi-prohibition-of-insider-trading-regulations-2015-_97595.html

[2] https://www.sebi.gov.in/enforcement/informal-guidance/jan-2016/informal-guidance-issued-in-the-matter-of-kpit_31577.html

SEBI FAQ dated December 31, 2024- https://www.sebi.gov.in/sebi_data/faqfiles/apr-2025/1744784643061.pdf

[3] Question 43- SEBI FAQ dated December 31, 2024- https://www.sebi.gov.in/sebi_data/faqfiles/apr-2025/1744784643061.pdf

[4] Question 40- SEBI FAQ dated December 31, 2024- https://www.sebi.gov.in/sebi_data/faqfiles/apr-2025/1744784643061.pdf

[5] SEBI | Informal Guidance in the matter of Star Cement Ltd

[6] SEBI | Informal Guidance in the matter of Arvind Ltd. under SEBI (Prohibition of Insider Trading) Regulations, 2015

[7] https://www.sebi.gov.in/enforcement/informal-guidance/feb-2020/in-the-matter-of-nimish-upendrabhai-patel-under-sebi-substantial-acquisition-of-shares-and-takeovers-regulations-2011-sebi-prohibition-of-insider-trading-regulations-2015-and-sebi-issue-of-ca-_45888.html

[8] Question 16G- SEBI FAQ dated December 31, 2024- https://www.sebi.gov.in/sebi_data/faqfiles/apr-2025/1744784643061.pdf

[9] SEBI AO in the matter of NS Agarwal Trading Corporation dt: December 24, 2021, page 23, point 17

[10] SEBI | In the matter of Raghav Commercial Limited under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and SEBI (Prohibition of Insider Trading) Regulations, 201

[12] https://www.sebi.gov.in/enforcement/orders/mar-2021/order-in-the-matter-of-marksans-pharma-limited-_49413.html

[13] https://www.sebi.gov.in/enforcement/orders/sep-2025/adjudication-order-in-the-matter-of-insider-trading-activity-of-certain-entities-in-the-scrip-of-ms-swan-energy-limited_96970.html

SEBI has increasingly emphasized strict enforcement of the Prohibition of Insider Trading (PIT) Regulations, especially concerning “contra trade” provisions. In a recent informal guidance sought by Century Plyboards (India) Limited [‘Century’], opinion was sought from SEBI on the application of contra trade restrictions when both a designated person and their immediate relative carried out reverse trades in a short span of six months?

As per the facts presented to SEBI, promoter and a designated person of Century, Mr. Sajjan Bhajanka, had acquired shares of the company on November 21, 2024. Shortly afterwards, Mr. Sajjan Bhajanka intended to gift shares on December 10, 2024, to his daughter (an immediate relative and member of the promoter group), via an off-market transfer. Further, the other daughter of Mr Sajjan Bhajanka intended to sell shares in the open market on December 20, 2024.

Opinion was sought from SEBI as to whether these transactions undertaken within a span of six months by Promoter and his immediate relatives would attract contra trade restrictions as per SEBI (PIT) Regulations?

Whether buy and sell of shares by immediate relatives and members forming part of promoter group would attract contra trade provisions?

SEBI opined that contra trade restrictions apply not just to the designated person but also to their immediate relatives collectively. Clause 3 read with clause 10 of Schedule B of PIT Regulations states that the designated persons and their immediate relatives are governed by an internal code of conduct inter alia specifying the contra trade restrictions for a period not less than six months. Further SEBI FAQs on SEBI (PIT) Regulations clarified that the contra trade restrictions are applicable to designated person and their immediate relatives collectively. SEBI emphasized that if any such opposite transactions (buy followed by sell, or vice versa) are executed by a designated person or their immediate relatives within six months, they fall under contra trade prohibitions[1]. If the company’s internal compliance officer is empowered, they may relax these restrictions in special cases, provided it does not violate the spirit of the regulations.

Determination of contra trade PAN wise or an entity wise?

SEBI has opined on applicability of contra trade provisions to designated persons prior to this in two informal guidance viz. Arvind Ltd and Raghav Commercial Ltd.  

• SEBI’s view on applicability of contra trade provisions in case of Arvind Ltd: In this case (facts of the case) Arvind Limited, a listed company on BSE and NSE, sought informal guidance from SEBI regarding the application of contra-trade restrictions under Clause 10 of Schedule B of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations). One of its promoters, Mr. P, holds shares of Arvind Ltd. under his PAN in multiple capacities: as an individual, as a trustee for his family, as a trustee for other beneficiaries, and as executor of various wills.

Question posed to SEBI was, “whether Mr. P would be considered a designated person for all such capacities and if contra-trade restrictions would apply collectively or individually across these holdings. Additionally, Arvind Ltd. asked if these restrictions would extend to shares held by co-trustees under a different PAN.”

SEBI opined that contra trade restrictions shall apply to all shares held by a designated person under the same PAN, irrespective of the different capacities (such as individual, trustee, or executor) in which those shares are held. This means that if a designated person sells shares held in one capacity under their PAN, they would be restricted from buying shares in another capacity under the same PAN. By logical extension, however, shares held under different PANs, such as those held by co-trustees or other persons acting in different capacities, would not collectively trigger contra trade restrictions. Each PAN is treated as a separate entity for applying contra trade provisions, so trading activities under different PANs should be considered independently. This interpretation aligns with SEBI’s distinction that contra trade restrictions are PAN-based and do not aggregate shares across different PANs, even if held for related parties or under different capacities.

• SEBI’s view on applicability of contra trade provisions in case of Raghav Commercial Ltd:

In this case  R. S. Software (India) Ltd. established the ‘R S Software Employee Welfare Trust’ in September 2012 to provide employee benefits such as medical facilities, scholarships, housing, and performance rewards. The Trust acquired 11,48,640 equity shares, representing 4.47% of the company’s total shareholding, between October 2012 and January 2013. Under regulation 3(12) of the SEBI (Share Based Employee Benefit) Regulations, 2014, the Trust was required to sell its share inventory on recognized stock exchanges by October 2019, within five years of the regulation’s notification. Promoters, the promoter group, executive directors, and independent directors of the company expressed interest in acquiring these shares from the Employee Trust via a stock market transaction. At the time, the promoters and directors held the following equity stakes: Rajnit Rai Jain (39.04%), Sarita Jain (1.43%), Rajasekhar Ramaraj (0.27%), and Richard Launder (0.19%).SEBI-IG-letter.pdf_p.pdf.pdf

Question posed to SEBI was “Whether the provision of contra-trade applies to trades made by an individual Promoter or whether the entire Promoter & Promoter Group is considered for the same. For example, if a single Promoter has executed a trade (RSWM Limited in this case), then whether the restrictions on contra trade apply to it separately or will it apply to the entire Promoter & Promoter Group.?”

To which SEBI Replied, “Consequent to the provisions of Regulation 9 of the PIT Regulations and Clause 3 of Schedule B to the PIT Regulations, the contra trade restrictions apply to trades made by promoters individually and not to the entire promoter group.” This means the contra trade provisions are considered on an individual promoter basis.

• SEB’s view on applicability of contra trade provisions in case of Deccan Gold Mines Ltd:

In this case Rama Mines (Mauritius) Ltd. (RMML) and Australian Indian Resources Ltd. (AIRL) are identified promoters of Deccan Gold Mines Ltd. (DGML), a company incorporated under the Companies Act, 1956, with shares listed on BSE. Yandal Investments Pty. Ltd. (YIPL) holds 48.98% of RMML and 22.45% of AIRL, while Halcyon Investments Ltd. (HIL) holds 24.75% of RMML and 30.88% of AIRL. AIRL was allotted shares of DGML on March 2, 2023, which are subject to a lock-in period of 18 months. RMML intends to sell DGML shares on the stock exchange. Both RMML and AIRL are corporate entities that share common promoter shareholders (HIL and YIPL), which have majority holdings in both entities, indicating their control by the same corporate promoters. The scenario was presented to SEBI for informal guidance regarding application of trading restrictions under the SEBI (Prohibition of Insider Trading) Regulations, 2015.

Question posed to SEBI was, “If two subsidiary companies (both part of the same promoter group and ultimately controlled by the same parent entity) undertook trades in opposite directions within six months, would that be a contra trade?” SEBI answered that, “since both subsidiary companies are ultimately controlled by the same parent entity, provision of contra trade restrictions shall apply to RMML and AIRL jointly i.e., if AIRL has purchased the shares… then restriction on contra trades shall apply to AIRL as well as RMML.” In simpler terms, the combined actions of entities or persons under a common control are treated together for the purpose of applying contra trade restrictions.

SEBI’s view on contra trade restrictions has seen a gradual shift from being PAN based restriction to being restriction based on PAN of immediate relatives.

Practical Impact and Challenges in implementing contra trade restrictions for immediate relatives and designated person.

The broader implications of this stand are significant:

• Cross-PAN Monitoring: For every trade executed by a designated person, companies must now diligently monitor trades by immediate relatives as well, even if under different PANs.
• Wider Responsibility: If a contra trade is triggered by an immediate relative’s action, the designated person may still be held liable under the code of conduct.
• Confusion in Disgorgement/Penalty: When a violation occurs due to an immediate relative, questions arise: Who pays the penalty or disgorges profits, the designated person, the relative, or both?

Conclusion

SEBI’s recent informal guidance, supported by specific FAQs, has removed ambiguity regarding contra trades. Now, any opposite trades (buy/sell or sell/buy) by a designated person and their immediate relatives within six months, whether through direct purchase, sales, or even gifts, are regarded as contra and could lead to regulatory action or penalties. To sum up, both professionals in governance and designated persons, including their family members, must be alert: every trade you or your immediate relatives make in the company’s shares may be under scrutiny for contra trade restrictions, regardless of whether the transactions are under different accounts or made independently. Corporate compliance officers are advised to educate employees and families about these rules and enhance surveillance to ensure collective compliance and avoid penalties

[1] Clause 10 of Schedule B under Regulation 9 of PIT Regulations: “The code of conduct shall specify the period, which in any event shall not be less than six months, within which a designated person who is permitted to trade shall not execute a contra trade…”

SEBI’s Comprehensive FAQs (Page 19-21, Section H, “Contra-trade”):
“Any buy/sell trade, undertaken by a Designated Person (DP) and their immediate relatives, within 6 months of an earlier sell/buy trade, respectively, where both the trades have been done in open market, will be tantamount to contra trade.”

The FAQ further explains: “Clause 3 of Schedule B and Schedule C specifies designated persons and immediate relatives of designated persons in the organisation shall be governed by an internal code of conduct governing dealing in securities. Hence, contra-trade restrictions (as mentioned in code of conduct) would be applicable to designated person and their immediate relatives collectively.”

Introduction:

Principle 4 of SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations), provides for prompt dissemination of unpublished price sensitive information on selective or inadvertent disclosure. Principle 1 of schedule A states that no information shall be disclosed only once concrete and credible information comes into being.

This article analyses interplay between Principle 4 over Principle 1 of the PIT Regulations.

 To analyse this we need to answer following questions:

• If there is inadvertent leak of UPSI then whether disclosure of same by listed company is required to be done under principle 4 of Schedule A of PIT?

Principle 1 and Principle 4 of Schedule A of PIT Regulations provide for different scenarios. Principle 1 talks about dissemination of UPSI as soon as it becomes concrete and credible. Principle 4 provides for action to be taken on the part of listed entity whenever there is a leak of UPSI. 

Principle 4 mandates that whenever there is inadvertent leak of UPSI, prompt disclosure in this regard is required to be given. A key distinction between the two principles is that Principle 1 stipulates disclosure of UPSI only at the concrete and credible stage, whereas Principle 4 requires immediate disclosure of any selectively or inadvertently leaked UPSI, irrespective of its development phase.

Hon’ble SAT in this regard has held that, “In our view, selective leakage of the information, howsoever accurate or otherwise or complete or in bits and pieces, does not discharge the company from its responsibility of making prompt disclosure to make it generally available, more so when such information has been classified by company as UPSI. Till the information is disclosed by the company, it remains unauthenticated.”  

Hence it is clear that once listed company has identified an information as UPSI, and there is a leak of that UPSI, at any stage till UPSI becomes concrete and credible, or on it becoming concrete and credible (but before formal disclosure happens) prompt disclosure needs to be made making information generally available.

• The next question that arises is if disclosure under principle 4 of schedule A of PIT Regulations is given whether company would still be required to disclose details of event or information as per regulation 30(11) of LODR (revised)?

Regulation 30(11) read with SEBI notified Industry Standards on Rumour Verification [‘ISF RV’] rumour verification shall be done by top 250 listed entities in accordance with principles and format laid down in ISF RV. Further ISF RV standards at Part B specify the language that shall be used by top 250 listed entities for confirming, denying or clarifying market rumours.

ISF RV inter-alia provides that where there is an impending merger & amalgamation transaction viz, concerning acquisition of sale of undertaking including share of shareholding in another company or scheme of arrangement etc., at a preparatory stage (viz. signing of NDA or non-binding term sheet etc.) or at an advanced stage (viz. binding term sheet is signed or all material commercial terms have been agreed between the parties etc.) and there is rumour in the market regarding same, then top 250 listed entities will have to confirm, deny or clarify.

Now if the impending merger & amalgamation transaction is also an UPSI, in accordance with PIT Regulations, then listed entities will have to make a prompt disclosure in accordance with PIT Regulations also.

While confirming, or clarifying rumours under reg 30(11) of SEBI LODR, top 250 listed entities will have to disclose in the format specified ISF RV. Further prompt disclosure of UPSI pursuant to leak of UPSI under principle 4 of PIT Regulations and disclosure as per ISF RV framework listed entities may be guided by the language used in ISF RV standards.

So listed entity will confirm or clarify the rumour as per ISF RV also mentioning that this disclosure is also in accordance with PIT Regulations.

Conclusion:

The evolving regulatory landscape, as clarified by the recent SAT pronouncements and reinforced by SEBI’s ISF Rumour Verification standards, unequivocally places a higher onus on listed entities to act decisively in the face of leaks or market rumours involving UPSI. No longer can companies wait for information to become concrete and credible; the responsibility to disseminate UPSI arises the moment any element escapes into the public domain, regardless of its form or completeness. Principle 4 of Schedule A, therefore, assumes central importance, mandating swift, transparent disclosure to restore parity and uphold the fundamental spirit of the PIT Regulations.

General Understanding and Scope:

• Automated trading window closure is applicable to whom? SEBI Circular dt: April 21, 2025 on automated trading window closure is applicable to all Entities having their equity securities or securities convertible into equity shares listed on a recognized stock exchange. Listed entities would not include Infrastructure Investment Trust, Real Estate Investment Trust, and debt listed entities[1].

• Is compliance officer still responsible for tracking trades of immediate relatives of designated person? Yes, compliance officer is still responsible for tracking of trades of designated persons and their immediate relatives for certain period. PAN freezing of designated persons and their immediate relatives for the purpose of automated trading window closure at ISIN level is required to be done on the designated depository portal at the end of the quarter. This PAN freezing begins from viz. July 1, Oct 1, Jan 1 and April 1. Listed companies may have to close trading window prior to this for the purpose of preparing of financials. For the period of closure of trading window by listed entity internally till PAN freezing of designated persons by depositories, tracking of trades would have to be done by compliance officer

Implementation and Compliance:

• How will the automated trading window closure for immediate relative work? Once a designated person declares the PAN of their immediate relatives to the listed entity, these PANs will be uploaded on the designated depository portal by listed entity. Listed entity would then fix date of the board meeting and update the start date and end date of trading window closure in the system. Upon this PAN would be automatically frozen by the depositories and stock exchanges during the trading window closure period for the securities of listed company.
• What information do listed entities need to provide for this automation? Listed entities are required to submit accurate and timely information  relating to PAN of designated persons, their immediate relatives, and trading window closure dates to the designated depository.
• What are the key timelines for implementation? The implementation of automated trading window closure would become applicable in a phased manner:
  • Top 500 companies based on BSE market cap-italization as of March 31, 2025, listed on BSE, NSE and MSEI: July 1, 2025.
  • All the remaining companies listed on BSE, NSE, and MSEI, as well as companies that get listed on stock exchanges after the issuance of this circular : October 1, 2025.
• What are the responsibilities of Designated Persons [‘DP’]under the new framework? DPs must accurately declare and keep updated the PAN details of their Immediate Relatives with the listed entity. They should also be aware of the trading window closure periods.
• What is the precise mechanism for “PAN-based trading freeze at the security level” for immediate relatives? Under PAN based freezing at security level for immediate relatives, securities linked to ISIN would be freezed in all demat accounts linked to that PAN. So if an individual is holding shares of ABC Ltd and he is DP for ABC Ltd then his PAN would be freezed for ISIN of equity shares of ABC Ltd. Even if he does not hold shares of ABC Ltd, his PAN would be freezed for ISIN of equity shares of ABC Ltd thereby disallowing him from dealing in shares of ABC Ltd.

Exceptions and Scenarios:

• Are there any exemptions to the trading window closure for immediate relatives? The circular primarily focuses on automated closure for financial results. General defense under regulation 4 of SEBI PIT Regulations for trading window closures, such as trades pursuant to a pre-approved trading plan, off-market inter-se transfers between insiders (with specific conditions), or exercise of ESOPs (but not the sale of shares acquired through ESOPs), may still apply. However, the automated freezing mechanism might necessitate further clarity on how these exceptions are handled systemically.
• If during trading window, issuer (listed entity) removed DP from the list due to cessation. Do they need to again delete from Trading Window tab as well, if yes, request you to please link this will addition deletion column? Issuer can delete name of DP from the list, but it will not be removed from trading window closure period. Issuers need to give exemption period for the same to that DP or else it will be unfrozen after the trading window period ends. The same process would be applicable to immediate relatives of DP also[1].
• If a new DP joins during trading window closure period then PAN freezing for DP and his immediate relative would start from? If any new person joins, PAN freezing for DP and his immediate relatives will start two days after DP and his immediate relative PAN is entered in system driven disclosure database of designated depositories. All data for automated freezing would be taken from system driven disclosure data in designated depositories.
• Can listed entity update addition of DP and / or his immediate relative in during trading window closure period? Yes, listed entity can update addition of DP and / or his immediate relative in depositories system during trading window closure period. But the freeze date will be accepted on T-2 basis from the date of addition[2]
• Can an immediate relative trade during the closure period if they received pre-clearance earlier? No. Any pre-clearance obtained when the trading window was open becomes invalid once the trading window is closed. The automated freeze will override any prior approvals[3].
• What about “immediate relatives” residing abroad, where PAN may not be applicable?
  • In case PAN is not required to be taken by immediate relative of designated persons then demat account details needs to be given for these immediate relatives.
  • If a designated person does not have PAN or a Demat account number, then such a person cannot trade in the Indian securities market. Hence, system driven disclosures will not trigger for such a person[4].
• How will “notional” trading window closures (i.e., not triggered by system for financial results) be handled for immediate relatives? The circular specifically addresses automation for financial results. For other UPSI that may trigger a trading window closure but is not yet covered by the automated system, the responsibility to restrict trading by immediate relatives would likely continue to rest with the Designated Person and the Compliance Officer, similar to the pre-circular scenario for immediate relatives.

FAQs released by BSE on June 20^th 

• If PAN already exists in any other Category, can it be migrated or transferred to Category of immediate relative? Yes, the PAN can be added by deleting/modifying to the immediate relative category.

Our FAQs on PAN freezing for designated persons are also available at the below link:

SEBI circular on automated PAN freezing for immediate relatives is accessible at below link:https://www.sebi.gov.in/legal/circulars/apr-2025/trading-window-closure-period-under-clause-4-of-schedule-b-read-with-regulation-9-of-securities-and-exchange-board-of-india-prohibition-of-insider-trading-regulations-2015-pit-regulations-ext-_93504.html

SEBI circular on automated PAN freezing for immediate relatives is accessible at below link:

https://www.sebi.gov.in/legal/circulars/apr-2025/trading-window-closure-period-under-clause-4-of-schedule-b-read-with-regulation-9-of-securities-and-exchange-board-of-india-prohibition-of-insider-trading-regulations-2015-pit-regulations-ext-_93504.html

BSE circular on FAQs on Inclusion of Immediate Relatives in Trading Window closure under SEBI (PIT) Regulations, 2015 is accessible at below link:

https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20250620-41

[1] https://nsearchives.nseindia.com//web/sites/default/files/inline-files/NSE_Circular_28032024_5.pdf

[2] ibid

[3] FAQ no. 29 SEBI FAQ dt: December 31, 2024

[4] https://nsearchives.nseindia.com//web/sites/default/files/inline-files/NSE_Circular_28032024_5.pdf

[5] https://nsearchives.nseindia.com//web/sites/default/files/inline-files/NSE_Circular_28032024_5.pdf

• This newsletter summarizes key points from a recent informal guidance letter issued by the Securities and Exchange Board of India (SEBI) regarding the interpretation of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations.
• The guidance was provided in response to a request from Century Plyboards (India) Limited, a company whose equity shares are listed on stock exchanges.

Background of the Query:

• Century Plyboards sought clarification on the applicability of PIT Regulations to certain transactions involving the gifting of shares among promoters
• Specifically, the company asked whether gifting shares would be considered a “contra trade” under the regulations and how this would affect related transactions.

Definition of Trading

SEBI clarified that the inter se off market gift of shares is considered “dealing in shares” and therefore falls under the definition of “trading” according to the PIT Regulations[1].

• Contra Trade Implications:
  • The guidance emphasizes that gifting shares can indeed attract contra trade restrictions.
  • This means that the person gifting the shares (donor) may face restrictions on buying or selling the company’s shares for six months.
  • SEBI also clarified that these restrictions apply not only to the designated person but also to their immediate relatives. SEBI further highlighted that FAQ no. 42 of SEBI PIT FAQs clearly states that contra trade restrictions are applicable to designated persons and their immediate relatives collectively[1].
  • SEBI further stated that entering into reverse trades within six months of receipt of gift by the designated persons, would attract provisions of contra trade.

• Relaxation by Compliance Officer:
  • However, SEBI pointed out that the PIT Regulations allow for relaxation from these contra trade restrictions.
  • A company’s compliance officer, if authorized by the Board of Directors, can grant exemption from the strict application of contra trade
  • This relaxation is subject to the condition that it does not violate any other provisions of the PIT Regulations

Designated Persons and Promoter Group:

SEBI reiterated provided as to who would be qualified to be a “designated person” under the PIT Regulations[1]. SEBI stated that all promoters of a listed company are automatically considered designated persons

Other members of the promoter group are included if they have access to Unpublished Price Sensitive Information (UPSI).  

Conclusion:

Contra trade applicability and the delineation of designated persons constitute particularly challenging areas within the PIT Regulations, often requiring recourse to SEBI for formal clarification. This informal guidance should significantly enhance industry comprehension and promote a more standardized approach to these critical considerations

[1] Reg 9(4)(iii) of PIT Regulations read with FAQ no. 51 of SEBI PIT

[2] FAQ no. 45 of comprehensive FAQ on PIT

[3] Clause 3 read with clause 10 of PIT Regulations read with FAQ no. 42.

[4] Clause 10 schdule B of PIT Regulations

[5] Reg 9(4)(iii) of PIT Regulations read with FAQ no. 51 of SEBI PIT

Securities and Exchange Board of India (Prohibition of Insider Trading), regulations, 2015 [‘PIT’] vide its amendment notification dt: March 12, 2025, amended the definition of ‘Unpublished Price Sensitive Information’ as per reg. 2(1)(n) of PIT [‘UPSI’].

Post this amendment events that are ordinarily considered as UPSI have increased from five events to sixteen events. Question that arises is whether all these events stated in the definition of UPSI would be considered as UPSI by default or a listed entity can still defend stating that that the event(s) provided in the definition of UPSI is not UPSI?

Introduction

In this regard, the observations from the report of the High-Level Committee to Review the SEBI (Prohibition of Insider Trading) Regulations, 1992 under the chairmanship of Justice Sodhi on UPSI, is noteworthy. The Committee observed as follows: “The Committee also felt that some illustrative examples of what would ordinarily constitute UPSI should be set out to clearly understand the concept. It is important to ensure that regardless of whether the information in question is price sensitive, no piece of information should mandatorily be regarded as UPSI. Towards this end, examples of events and developments information about which would ordinarily be regarded as UPSI, are listed – such as financial results, dividends, mergers and acquisitions, changes in capital structure etc.”

The  Chief  Executive  Officer,  Managing  Director  or  such  other  analogous  person  of  a listed  company,  intermediary  or  fiduciary  shall  put  in  place  adequate  and  effective  system  of internal  controls  to  ensure  compliance  with  the  requirements  given  in  these  regulations  to prevent insider trading. Internal controls shall inter-alia include identification of UPSI. Hence it means obligation is on the CEO or MD or analogous person to put in place adequate and effective systems for identification of UPSI.

So it means even if the list of events ordinarily considered as UPSI has increased from five to sixteen, still listed companies can defend whether a particular event specified in the definition of UPSI is not necessarily a price sensitive information for their company.

Precedents in identification of UPSI

SEBI in its adjudication order dt: June 8, 2021, in the matter of Mr. Kunal Kashyap and Allegro Capital Pvt Ltd in the matter of Biocon Ltd has stated that, “…the illustrations (as provided under the definition of UPSI) are not mandatorily UPSI, if proven otherwise….”

Further Hon’ble SAT in the matter of Anil Harish Vs. SEBI (date of Order-June 22, 2011) has held that whether an information is price sensitive information or not will depend on the facts  and  circumstances  of  each  case. Also, Hon ‘able Supreme Court in SEBI vs. Abhijit Rajan (Civil Appeal No.563 of 2020, Decision dated September 19, 2022) has held that, “That the price sensitivity of an information has a correlation directly to the materiality of the impact that it can have on the price of the securities of the company. An  information  may  materially  affect  the  price  of  the  security  of  a  company  either positively  or  negatively.  The  impact  may  be  beneficial  or  adverse.  The  information should have the potential either to catapult the price of the securities of the company to  a  higher  level  or to make  it  plunge.  The  effect  can  be  bullish  or  bearish. But  the effect should be material and not completely insignificant”

Conclusion

Hence it can be seen that whenever any information or event is added in the definition of UPSI it does not necessarily mean that it would be mandatorily considered as deemed UPSI under PIT. As seen in above cases Hon’able Supreme Court, SAT, and SEBI has held that for any information or event to be UPSI it should be based on facts and circumstances of each case. Further the list of UPSI provided therein is just an illustrative list of UPSI and if proven otherwise then it may not be considered as UPSI.

Hence it can be inferred that the expanded list of UPSI as provided by SEBI in the amended definition of UPSI would still not be considered as UPSI if proven that it was not UPSI.

This article has been published on Taxguru. The link for the same.

https://taxguru.in/sebi/sebi-amends-upsi-definition-companies-defend-upsi-claims.html