The Securities and Exchange Board of India (Sebi) on Friday proposed an overhaul of the ‘trading plan’ framework to allow ‘insiders’ to deal in their own shares with greater flexibility. The regulator has proposed the removal of the ‘black-out’ period, reduction in cool-off time period, and easier price limits.
Senior management and key managerial personnel, who usually have access to unpublished price-sensitive information (UPSI), are considered insiders and have a small window to carry out trades.
These insiders have to give a ‘trading plan’ specifying the share price, amount, and transaction date in advance.
“Since the introduction of trading plans in 2015, data and market feedback suggest that the current regulatory requirements in respect of trading plans are onerous and consequently, trading plans are not very popular,” notes the paper.
Sebi has proposed a reduction in the minimum cool-off period between disclosure and implementation of the trading plan from six months to four months. The market regulator has also recommended reducing the coverage period from 12 months to two months, removal of the black-out period, and a 20 per cent price range for buying or selling trades in the trading plan.
“Such price limit shall be within +/-20% of the closing price on the date of submission of the trading plan. If the price of the security, during execution, is outside the price limit set by the insider, the trade shall not be executed. If no price limit is opted for, the trade has to be undertaken irrespective of the prevailing price,” noted Sebi.
As a significant component of the compensation for key managerial personnel (KMPs) includes employee stock options, industry experts feel that this change would act as a breather for senior management.
“Finally, there is a breather proposed for all CXOs possessing wealth but were not able to unlock due to stringent norms under PIT Regulations. This will boost CXOs to participate in the ESOP scheme of companies as currently, there are a lot of restrictions on selling of shares while exercise of ESOP was easy,” said Makarand M Joshi, Founder of MMJC & Associates.
Sebi has also proposed an alternative disclosure of trading plans so as to keep personal information on some KMPs confidential.
“To counter any concerns of possible misuse arising from masking of names from the public, a unique identifier which is a common reference number with a timestamp may be put on these filings for reconciliation purposes,” said Sebi.
The recommendations have been submitted by a working group constituted by the market regulator with members from Sebi, stock exchanges, and corporates.
Sebi has sought comments from the public and stakeholders by December 15.