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Non-Disclosable information cannot be considered to be UPSI

Finsec Law Advisors

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In its order dated October 14,  passed in respect of Subhash Chander Kalia (Noticee) in the matter of insider trading in the scrip of Yes Bank Limited, the SEBI adjudication officer (AO) held that information that should not have been disclosed to the public cannot be reasonably be expected to reach the public domain, and therefore cannot be categorised as unpublished price sensitive information (UPSI).

As per the facts of the matter, the Noticee was a director of Yes Bank. On February 05, 2019, Yes Bank received the RBI preliminary risk assessment report which stated that there was ‘nil divergence in asset classification and provisioning’ (Relevant Information). This was confirmed by the RBI risk assessment report on February 13, 2019, which was disclosed to the exchanges the same day by Yes Bank. Subsequent to the disclosure, the price of Yes Bank’s share went up by 32%. As the Noticee had traded in the scrip of Yes Bank on February 08, 2019, considering the Relevant Information to be UPSI, a show cause notice was issued alleging that the Noticee had traded while in possession of UPSI.

The AO noted that UPSI is information that, upon being generally available, is likely to materially affect the price (emphasis supplied). Therefore, for even a price sensitive information to be considered to be UPSI, it should be reasonably foreseeable to reach the public. By reviewing the SEBI and RBI circulars, the AO noted that that the Relevant Information was not required to be disclosed by Yes Bank. Further, RBI and Yes Bank had issued statements on February 15, 2019 stating that the reports were confidential and no part of it, including the Relevant Information, was supposed to be disclosed. In view of this, the AO observed that the Relevant Information is not UPSI. The AO also noted that the Noticee was not aware of the report at the time of executing his trades.

In light of the above, the AO held that the Noticee cannot be considered to have traded in the scrip of Yes Bank while in possession of UPSI, as even if the Noticee was aware of the Relevant Information, it cannot be reasonably be construed as UPSI by the Noticee.

Relying on the Sodhi Committee report, based on which the SEBI (Prohibition of Insider Trading) Regulations, 2015 were enacted, the AO has passed a well-reasoned order by aptly determining UPSI to be information that is supposed to reach the public domain, without merely looking at the price sensitivity of the information.