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SEBI: Extended closure of Trading Window for Insiders due to Covid-19

Finsec Law Advisors

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In view of the rising concerns around the spread of novel corona virus disease (Covid-19) and the nationwide lockdown imposed by the Central Government, the Securities and Exchange Board of India (SEBI) had provided relaxation to listed entities and market participants by extending the deadlines for compliance with several provisions, including that of filing of quarterly and annual financial results. In its circular dated March 19, 2020, SEBI had inter alia permitted listed entities to file their quarterly and annual financial results by June 30.

As per the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations), the trading window for insiders, including promoters, of listed entities is required to be closed from the end of each quarter till 48 hours after the declaration of the financial results. During the closure of trading window, the designated persons of a listed entity and their immediate relatives are not allowed to trade in the securities of such company. As quarterly / annual financial results were previously required to be declared within 45 / 60 days from the end of each quarter / financial year, the trading window for such persons was accordingly closed for the same period. However, in terms of the new deadline for filing of quarterly / financial results as stated above, the trading window for such promoters and insiders, being designated persons, would now be effectively closed for a longer period than 45 / 60 days i.e. from April 1 to June 30, 2020 or till the actual date of declaration of financial results.

According to reports, SEBI has rejected requests of promoters to extend the date of commencement of closure of trading window, i.e. end of quarter, in order to prevent potential instances of insider trading. In fact, as per a notification issued by BSE Limited (BSE) dated March 31, 2020, it is stated that SEBI had received requests for relaxation in respect of the above stated trading restriction provided under the PIT Regulations. However, as per the said notification, SEBI has not acceded to such requests.

Over the past few days, the securities market has witnessed a sharp decline in prices of securities owing to various factors, including the fear of spread of Covid-19. In such circumstances, prohibiting promoters and insiders from trading in securities of their own listed companies may be counter-intuitive as it will prevent promoters from buying such securities, a move which may have otherwise helped both stock prices and the market to recover. In our view, such blanket restriction on trading till June 30 or the date of declaration of financial results may not be in the best interests of the securities market, especially in the present times which are marked by uncertainty and skepticism.

In our view, SEBI should have allowed each listed entity to decide their own trading window, depending upon the stage at which the financial results of such entity are. For instance, if an entity is already at an advanced stage of preparation of financial results and the management of such entity is aware of the results, the trading window is required to be closed in order to prevent potential insider trading. On the other hand, if an entity is at an early stage of preparing the financial results and such entity would be able to declare the same only by the middle of May, there appears no rationale to prohibit all promoter purchases for the next one month or until the declaration of financial results.