October 1, 2024
Recently the Securities Exchange Board of India (SEBI) has released a Consultation Paper on whether certain transactions including subscription to non-convertible securities may be given exemption from trading window restriction norms for enhancing the ease of doing business.
Trading window restrictions norms are imposed in pursuance to the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”) which prohibits insider trading i.e. trading when in possession of Unpublished Price Sensitive Information (‘UPSI’). UPSI means any information, relating to a company or securities, which upon becoming generally available, is likely to affect the price of the securities.
In this regard, PIT Regulations mandate closure of the trading window when the compliance officer of the company determines that the Designated Persons (‘DPs’) can reasonably be expected to have possession of UPSI. During the trading window closure, the DPs and their immediate relatives are prohibited from trading in the securities to which such UPSI relates, so as to prevent unfair gains due to information asymmetry.
Exemptions currently available under SEBI (PIT) Regulations, 2015
- As per clause 4 of Schedule B read with regulation 9(1) of PIT Regulations, trading window restrictions shall not be applicable to transactions, inter alia, which are undertaken in accordance with respective regulations made by the Board such as acquisition by conversion of warrants or debentures, subscribing to rights issue, further public issue, preferential allotment or tendering of shares in buy back offer, open offer, delisting offer or transactions which are undertaken through such other mechanism as may be specified by the Board from time to time.
Exemptions from the trading window restrictions on these transactions are based on certain guiding principles:
- These are pre-decided events,
- These are regulated, and
- These are already subject to disclosure requirements/ shareholder approval under applicable regulations.
Proposal for allowing transactions such as subscription to non-convertible securities during trading window closure:
Based on feedback from market participants, SEBI now proposes that certain transactions such as subscription to Non-Convertible Debentures and similar other instruments, which meet the guiding principles, may be exempted from trading window restrictions.
The Non-Convertible Debentures are part of Non-Convertible Securities (‘NCS’), as defined under the SEBI (Issue and Listing of Non Convertible Securities) Regulations, 2021 (‘NCS Regulations’). Issuance of NCS is a pre-decided event and is regulated and subject to disclosure requirements/ shareholder approval under the respective regulations and so the subscription to the issue of NCS, which meets guiding principles for exempting transactions from trading window restrictions may be considered.
NCS also include “non-convertible redeemable preference shares, perpetual non-cumulative preference shares, perpetual debt instruments and any other securities as specified by the Board”, under the NCS Regulations. Perpetual non-cumulative preference shares and perpetual debt instruments, are issued in accordance with guidelines framed by RBI. However, as regards listing of these instruments on Stock Exchanges, the issuer is required to comply with the conditions stipulated under Chapter V of the NCS Regulations and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. Further, the issuer is required to comply with terms and conditions as specified from time to time and make required disclosures as specified under Schedule I of the NCS Regulations and any other disclosures as may be specified by SEBI.
Data with regard to the number of issues of NCS, listed on the exchange platform over the period April 01, 2022 to August 31, 2024 as complied by the SEBI Consultation Paper is reproduced as under:
SEBI has called for comments/suggestions are from public till October 17, 2024 on whether subscription to Non-Convertible Securities or any other transactions may be exempted from trading window restrictions as they meet the guiding principles.