Determination and Disclosure of Unpublished Price Sensitive Information (UPSI)

Unpublished Price Sensitive Information is one of the most important aspects which is regulated by Securities and Exchange Board of India (SEBI) vide initial roll out in the year 2015 (Regulation 8 of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (the “Regulations”). It’s the bone of contention in all economies of the world whether it be the emerging economy or the developed economy.

Regulation 8 of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (the “Regulations”) requires the Board of Directors of a listed company to formulate and publish on its official website, a code of practices and procedures for fair disclosure of unpublished price sensitive information in the manner prescribed therein.

Various restrictions and provisions are mentioned in the Sebi Regulations. Everyone is happy at the time of listing at the Stock exchange. The things start’s getting complicated when each and every major event does have an impact on the share price and thereby changes in market capitalization of the company. When there are multiple events happening round the clock, it is the duty of the management of the company to disclose what, how and when the information is to be published for the public at large to keep all the shareholders and stakeholders informed.

It is a well known fact that is very difficult to determine the exact time when the information should have been published to stock exchange while the event goes through the process of requirement, discussion, analysis and finalization. So, it is extremely critical that Compliance officer of the company does have checks and balances on each and every material event. What is material and what is not material is an contention which will differ from company to company and has to be found based on the facts and figures for each event in an Organization. It has been found that this regulation most difficult to be followed and implemented in any organization.

"Unpublished Price Sensitive Information" means any information, relating to the company or the Company’s material subsidiary or the securities of the Company, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating to the following: – (i) financial results; (ii) dividends; (iii) change in capital structure; (iv) mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other transactions; (v) changes in key managerial personnel. (vi) such other information as determined by the Board of Directors/Chief Executive Officer/Chief Operating Officer/Chief Financial Officer in consultation with the Compliance Officer.

Few Characteristics which are prevalent in any unpublished price sensitive information

1. The event should be a material event for a company.
2. All people who have access to the information/event, he may be called an insider.
3. All people having access to information, their willingness to share the information.
4. Finally how does the information is communicated the people having information.

These characteristics lay the foundation to analyze whether the compliance with the law has been made or not. The last step is most important since that will determine the coverage for unpublished price sensitive information.

Few noteworthy points to understand about the price sensitive information-

1. Event should be done that is not a part of the normal course of business. The same should have an impact to give visibility on the future operations of the company.
2. Unpublished price sensitive information for one company may not be UPSI for another company. The same will differ based on the facts of each company.
3. Value of the transaction (event) vis a vis the net worth of the company.
4. Involvement of Senior Management in decision making pertaining to the event.
5. Such information should remain unpublished.
6. Impact on the Market price upon event becoming Price Sensitive information- In case the impact is of a reasonable nature, the same to be considered as a material event for the company.

In order to have compliance done, here are few methods by which the compliance can be efficiently complied-

1. Audit committee meeting and Board Meeting to happen on the same day, if possible.
2. Mobile phone access may not be allowed in the Board Meetings.
3. No access of financial data to employees on contract terms.
4. Limited access to financials – need to know basis.
5. Email circulation to be regulated.

Exemption

Pursuant to regulation passed in the year 2019 by SEBI, direction from SEBI to divest within 3 months, rights issue, preferential allotment, etc. to name a few can be transacted even during the trading window closure period.

The Way forward

1. Every company should increase their protection measures so that public sensitive information is not leaked/ diluted to anyone except on need to know basis and to the regulatory authorities based on legitimate purposes.
2. Structured database/ regulated cloud (in house) databases is one of best methods to preserve information.
3. At least once a year, systems audit may be made mandatory.
4. Outsourcing of database containing price sensitive information may be prohibited since the same would defeat the very basic purpose of this regulation.
5. Maintenance of complete records as per SEBI norms.
6. Policy of Fair Disclosure of Unpublished Price Sensitive Information may be communicated to all stakeholders and necessary training provided.
7. Trading plan as per SEBI norms may be provided to the people who are mostly occupied with the price sensitive information round the year. There are number of conditions/ restrictions imposed on the trading plan by SEBI at present and hence the same is not popular as of now. Trading plan can be used as a very effective defense plan for the people who are mostly occupied with price sensitive information. Industry bodies may provide recommendations for changes to the trading plan to make it popular and have greater acceptance.
8. Since the number of complains is increasing day by day to SEBI for insider trading matters and the penal consequences are huge as well as impact on the Goodwill of the company, the company should monitor this compliance very closely.
9. The transactions which happens intraday and future and options contracts are not being monitored by SEBI for compliance with this regulation. SEBI in time to come may come up with techniques and methods to cover within its ambit these transactions too.

The essence of this regulation is to enable fair play in the market and to prevent people from wrongful gain/loss by having price sensitive information.

Disclaimer: SEBI website has been referred while preparing this article. This article is meant for understanding purposes only and in no way be deemed to be an advice or solicit any marketing whatsoever. Any decisions based on this article would not held me liable for any action whatsoever. Please get in touch with your legal consultants to understand the scope and impact pertaining to your industry.