SEBI directs impounding of notional gains in insider trading case
The Securities and Exchange Board of India (SEBI) has recently passed an ad interim ex parte order impounding notional gains made and losses avoided by, amongst others, promoters of PC Jeweller Limited (Company) for having executed trades based on unpublished price sensitive information of the Company (UPSI).
Background
The SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) prohibits: (a) disclosure or communication of UPSI (other than in certain prescribed circumstances such as, for legitimate purpose, discharge of legal obligations); and (b) trading in securities of a listed company while in possession of UPSI.
In the instant case, promoters of the Company (occupying the office of Managing Director and Chairman of the Company) allegedly communicated to their related entities, information in relation to the Company’s buyback offer and its subsequent withdrawal, and such promoters and their related entities traded in securities of the Company while in possession of such information.
To determine whether the above actions were in violation of the PIT Regulations, SEBI conducted an investigation and analysed various data points including, amongst others:
Ø |
Fluctuation of market price: To determine if information relating to the proposed buyback and its subsequent withdrawal constitutes UPSI, SEBI analysed the chronology of events in relation to the generation of such information, along with the impact of the public announcements of the buyback offer and its withdrawal on the market price of the equity shares of the Company. The intent behind this analysis was to determine whether information related to the buyback ‘materially affected’ the price of the securities upon coming into the public domain. |
Ø |
Trading by suspected entities: SEBI analysed the trades undertaken by the promoters and their related entities (or on behalf of them) in the Company’s equity shares and derivatives, as well as any related transfer of funds. |
Ø |
Relationship between the suspected entities: SEBI also analysed the relationship between the promoters and their related entities to determine if UPSI in relation to the Company’s buyback offer could have been communicated. |
Basis its investigation, SEBI’s prima facie observations/ findings were:
Ø |
information pertaining to the Company’s buyback offer and its subsequent withdrawal constituted UPSI under the PIT Regulations; |
Ø |
the promoters disclosed such UPSI to their related entities, who executed trades on the Company’s scrip based on such UPSI leading to wrongful notional gains/ avoidance of loss; and |
Ø |
the promoters and the related entities are prima facie in contravention with the SEBI Act, 1992 and the PIT Regulations. |
SEBI computed wrongful notional gains made, and losses avoided by the related entities during the period of investigation. Additionally, SEBI also calculated interest at the rate of 12% (twelve per cent) per annum on such notional gains/ avoided losses.
SEBI’s order
Pursuant to its investigation, SEBI passed an ad interim ex parte order inter alia impounding notional gains made and losses avoided by the promoters and their related entities by trading in the scrip of the Company based on UPSI. The sums specified are required to be transferred to an escrow account.
Comment
SEBI’s proactive and structured approach indicates the regulator’s intent of cracking down heavily on entities engaging in contravention of the PIT Regulations. This case is a classic example of SEBI’s ability to undertake in-depth analysis of data including market price fluctuations, fund movement and inter-se relations between insiders and trading entities.
- Arindam Ghosh (Partner), Abhishek Dadoo (Principal Associate), and Charu Singh (Associate)
For any queries please contact: editors@khaitanco.com
We have updated our Privacy Policy, which provides details of how we process your personal data and apply security measures. We will continue to communicate with you based on the information available with us. You may choose to unsubscribe from our communications at any time by clicking here.
For private circulation only
The contents of this email are for informational purposes only and for the reader’s personal non-commercial use. The views expressed are not the professional views of Khaitan & Co and do not constitute legal advice. The contents are intended, but not guaranteed, to be correct, complete, or up to date. Khaitan & Co disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident or any other cause.
© 2024 Khaitan & Co. All rights reserved.
Mumbai
One World Centre
10th, 13th & 14th Floor, Tower 1C
841 Senapati Bapat Marg
Mumbai 400 013, India
Mumbai
One Forbes
3rd & 4th Floors, No. 1
Dr. V. B. Gandhi Marg
Fort, Mumbai 400 001
Delhi NCR (New Delhi)
Ashoka Estate
11th Floor, 1105 & 1106,
24 Barakhamba Road,
New Delhi 110 001, India
Kolkata
Emerald House
1B Old Post Office Street
Kolkata 700 001, India
Bengaluru
Embassy Quest
3rd Floor
45/1 Magrath Road
Bengaluru 560 025, India
Delhi NCR (Noida)
Max Towers,
7th & 8th Floors,
Sector 16B, Noida
Uttar Pradesh 201 301, India
Chennai
8th Floor,
Briley One No.30
Ethiraj Salai
Egmore
Chennai 600 008, India
Singapore
Singapore Land Tower
50 Raffles Place, #34-02A
Singapore 048623
Pune
Raheja Woods
03-108-111, 3 Floor
8, Central Avenue, Kalyani Nagar
Pune - 411 006, India
Gurugram (Satellite Office)
Suite No. 660
Level 6, Wing B,
Two Horizon Center
Golf Course Road, DLF 5
Sector 43, Gurugram
Haryana 122 002, India
Ahmedabad
1506 - 1508, B-Blockr
Navratna Corporate Parkr
Iscon Ambli Road, Ahmedabadr
Gujarat - 380058