Introduction

Securities and Exchange Board of India (SEBI) in its Board meeting held on 19th November, 2014 in Mumbai, deliberated on and approved a replacement of the Insider Trading Regulations. It introduced a new regulation on Listing Obligations and Disclosure Requirements, which will seek to replace the listing agreement. Apart from this, it also approved major changes in the Delisting Regulations, Mutual Fund Regulations, Foreign Venture Capital Investors Regulations, etc. These changes are yet to be notified. This article will provide you with a summary of key amendments approved by SEBI based on the press release.

SEBI (Prohibition of Insider Trading) Regulations, 2014

• Definition of Insider
  • The definition of Insider has been made wider by including persons connected on the basis of being in any contractual, fiduciary or employment relationship that allows such person access to Unpublished Price Sensitive Information (UPSI).
  • All persons in the deeming category covered under 1992 regulations would continue to be covered under the definition of Insider.
• Connected persons:
  • In the case of connected persons the onus of establishing, that they were not in possession of UPSI, shall be on such connected persons.
  • Companies by law would be entitled to require third-party connected persons to disclose their trading and holdings in securities of the company.
• Clear prohibition on communication of (UPSI) has been provided except legitimate purposes, performance of duties or discharge of legal obligations.
• Disclosure of UPSI
  • The requirement of communication of UPSI in the case of legitimate business transaction has been recognized in law and a carve-out with safeguards has been provided.
  • Advance disclosure of UPSI in public domain, atleast 2 days prior to trading has been made mandatory, so as to rule out asymmetry of information in the market.
• Definition of price sensitive information:
  • UPSI has been defined as information not generally available and which may impact the price.
  • The definition of UPSI has been strengthened by providing a test to identify price sensitive information, aligning it with listing agreement and providing platform of disclosure. The definition has been made inclusive.
  • The definition of price sensitive information now has reference to both company as well as securities.
  • To provide clarity, Generally Available Information has been defined as information that is accessible to public on a non-discriminatory platform such as stock exchange.
• In line with the Companies Act, 2013, prohibition on derivative trading by directors and KMPs on securities of the company has been provided.
• Insiders who are liable to possess UPSI throughout the year would have the option to formulate pre- scheduled trading plans. Trading plans would have to be disclosed on the stock exchanges and have to be strictly adhered to. Trading plans shall be available only for bona fide transactions.
• Principle based Code of Fair Disclosure and Code of Conduct has been prescribed.
• Certain circumstances have been provided, which can be demonstrated by an insider to prove his innocence.
• Repeated disclosures have been removed so as to ease compliance burden and to align these regulations with Takeover Code. Disclosure of any change of 2% for persons holding more than 5% shares or voting rights has been removed as they are prescribed under Takeover Code.

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2014

• This Regulation would consolidate and streamline the provisions of existing listing agreements thereby ensuring better enforceability.
• This Regulation would be applicable for the following type of securities:
  • Specified Securities (includes equity and convertibles) – Listed on Main Board and SME Platform,
  • Non-convertible Debt Securities,
  • Non-Convertible Redeemable Preference Shares,
  • Indian Depository Receipts,
  • Securitised Debt Instruments,
  • Units issued by Mutual Fund Schemes
• The common obligations applicable to all listed entities have been enumerated at the beginning of the Listing Regulations. Obligations which are applicable to specific type of securities have been laid down in separate chapters.
• The Listing Regulations have been sub-divided into three parts viz.
  • substantive provisions incorporated in the main body of Regulations,
  • procedural requirements in the form of Schedules to the Regulation,
  • various formats/ forms of disclosures to be specified by SEBI through circular(s).
• Some of the important new provisions in the Listing Regulations include:
  • The overarching principles for making disclosures & obligations,
  • Mandatory filing on Stock Exchanges through electronic platform,
  • Mandatory appointment of Company Secretary as compliance officer except for units of Mutual Funds listed on Stock Exchanges,
  • Introduction of enabling provision for Annual Information Memorandum,
  • Mandatory registration in SCORES by all listed entities for redressal of investor grievances,
  • Mandatory for listed entities to co-operate with intermediaries registered with SEBI,
  • Converged provisions for specified securities (equity segment) listed on Main Board and SME Platform with necessary carve-outs for SMEs,
  • Applicability of certain equity segment provisions, such as, submission of Form B (audit reports containing modified opinion), transfer and transmission of securities, etc. to entities which have listed their Debt Securities and/or NCRPS,
  • Necessity to execute a shortened version of Listing Agreement within six months of notification of these regulations.
• A number of  changes  which are  in  the  nature  of  either  providing  clarity  or maintaining  consistency  or  removal  of  redundancies  have  been carried  out  in  the  Listing Regulations. Such changes include
  • removal of dichotomy regarding utilization of issue proceeds,
  • manner of dealing with unclaimed shares,
  • aligning connected provisions pertaining to disclosures on website and issuing advertisements,
  • disclosures in Annual  Report,
  • documents and  information  to  be  provided  to  holders  of  securities,  terms and structure of securities,
  • operational modalities in manner of review of audit reports with modified opinion, etc
• The provisions of listing agreement that are related to issuance of securities and not in the nature of continuous obligations have been now incorporated in respective regulations, viz., ICDR Regulations, ILDS Regulations, etc. Similarly, requirements which are in the nature of continuous disclosure and obligations have been shifted and now incorporated in the Listing Regulations.

Amendment to SEBI (Delisting of Equity Shares) Regulations, 2009

• The delisting shall be considered successful only when
  • The shareholding of the acquirer + the shares tendered by public shareholders >= 90% of the total share capital of the company and
  • If at least 25% of the number of public shareholders, holding shares in demat mode tender in the reverse book building process.
• The offer price determined through Reverse Book Building shall be the price at which the shareholding of the promoter, after including the shareholding of the public shareholders who have tendered their shares, reaches the threshold limit of 90%.
• The promoter/ promoter group shall be prohibited from making a delisting offer if any entity belonging to the said group has sold shares of the company during a period of 6 months before the date of Board meeting in which approves the delisting proposal.
• Use of Stock Exchange platform for offers made under Delisting, Buy Back and Takeover Regulations.
• The Board of the company shall approve the proposal for delisting only after satisfying itself that delisting is in the interest of shareholders and that the company is in compliance with applicable securities laws.
• The Board of the company shall appoint a Merchant Banker on behalf of the company and the promoter for the said purpose and for compliance with the Delisting Regulations.
• On fulfilment of the following conditions, a company will be exempted from following the Reverse Book Building process
  • Paid up capital <= Rs.10 crore
  • Net worth <= Rs.25 crore
  • There was no trading in the shares of the company in the last one year from the date of the board resolution authorizing the company to go for delisting.
  • Trading of shares of the company has not been suspended for any non-compliance during the same period.
• Timeline for completing the delisting process has been reduced from 137 calendar days (approx. 117 working days) to 76 working days.
• Option to the acquirer to delist the shares of the company directly through Delisting Regulations pursuant to triggering Takeover Regulations has been provided. However if the delisting attempt fails, the acquirer would be required to complete the mandatory open offer process under the Takeover Regulations and pay interest @ 10% p.a. for the delayed open offer.

Amendments  in  Securities  and  Exchange  Board  of  India  (Foreign  Venture  Capital  Investors) Regulations, 2000

The FVCI Regulations till now did not allow investments in NBFCs except Equipment Leasing and Hire Purchase Companies. To encourage investments in infrastructure, the Board approved amendments in FVCI Regulations to allow FVCIs to invest in NBFC-CIC (Core Investment Companies), as defined by RBI.

Conclusion

The amendments to the regulations are now awaited. Review of such amendments to regulations, whenever notified, is expected to bring in clarity to various issues left open.