Trading Plan under SEBI (Prohibition of Insider Trading) Regulations, 2015
Under the SEBI (Prohibition of Insider Trading) Regulations, 2015, a Trading Plan is a structured framework that allows insiders (such as employees, directors, or connected persons) to trade in the securities of a company in a pre-planned manner, even when they may have access to unpublished price-sensitive information (UPSI).
This provision is designed to ensure transparency and avoid allegations of insider trading, provided specific conditions are met. A trading plan is a voluntary mechanism that provides insiders the flexibility to trade in securities without breaching insider trading laws. It is not mandatory, but it allows insiders to operate in a regulated and transparent environment.
The trading plan must be presented to the company’s compliance officer for approval. The compliance officer is responsible for reviewing the plan to ensure it complies with the SEBI regulations and the company’s internal code of conduct. Approval from the compliance officer is a critical step in legitimizing the plan.
Once the compliance officer approves the trading plan, it is disclosed to the stock exchanges where the company’s securities are listed. This disclosure ensures that the broader market is aware of the insider’s intentions and prevents potential suspicions of insider trading.
The trading plan must include a mandatory cooling-off period of at least six months before the insider can begin trading. This cooling-off period ensures that any unpublished price-sensitive information the insider may have had at the time of creating the plan loses its relevance, thereby preventing misuse of such information.
The plan must cover a minimum period of twelve months. This ensures that the trading activities under the plan are not short-term or speculative and align with the objectives of a structured and pre-determined trading framework.
The trading plan prohibits trading during any period when unpublished price-sensitive information is available. Insiders must ensure that their trading actions are independent of any such sensitive information, thereby upholding market integrity.
An insider is not allowed to have more than one trading plan in operation at any given time. This restriction prevents the misuse of multiple plans to manipulate trading activities and ensures adherence to a single, pre-determined framework.
Once submitted and approved, the trading plan becomes binding on the insider. The insider is obligated to execute the trades as per the approved plan and is not allowed to deviate from it, withdraw it, or engage in trading outside the plan.
Any trading carried out under the approved trading plan is not considered insider trading, provided it adheres to all the regulatory requirements. This ensures that the insider is protected from allegations of misconduct while complying with the law.
A trading plan enhances transparency in insider transactions, as it allows the market and regulators to monitor trades within a pre-approved framework. It protects insiders from allegations of insider trading by ensuring their actions are pre-planned and compliant with the regulations. Moreover, it ensures adherence to SEBI’s insider trading regulations, promoting trust and integrity in the securities market.
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