Securities and Exchange Board of India (Prohibition on Insider Trading) (Amendment) Regulations, 2022 – 24th November, 2022

SEBI vide its notification dated 24^th November, 2022 amended the Securities and Exchange Board of India (Prohibition on Insider Trading) Regulations, 2015. These Regulations may be called the Securities and Exchange Board of India (Prohibition on Insider Trading) (Amendment) Regulations, 2022. They shall come into force on such date as the Board may by notification in the Official Gazette, appoint.

SEBI at its Board meeting dated 03^rd October, 2022 had decided to include mutual fund (MF) units under the ambit of insider trading regulations. Regulation says that no insider shall trade in the units of a scheme of a mutual fund, when in possession of unpublished price sensitive information, which may have a material impact on the net asset value of a scheme or may have a material impact on the interest of the unit holders.

With this amendment, SEBI specified a list of people who will be considered as insiders and restrictions pertaining to trading by Designated person, handling of UPSI, Formulation of code of conduct, etc.

Sr. No.	Part/Regulation/ Chapter/Section /Sub-section(s)	Under Old Regulation	Under New Regulation	Comment
1.	in regulation 2, in sub-regulation (1), in clause (i), the words “except units of a mutual fund” shall be omitted.	“securities”  shall  have  the  meaning  assigned  to  it  under  the  Securities  Contracts (Regulation) Act, 1956 (42 of 1956) or any modification thereof except units of a mutual fund;	“securities”  shall  have  the  meaning  assigned  to  it  under  the  Securities  Contracts (Regulation) Act, 1956 (42 of 1956) or any modification thereof except units of a mutual fund;	With this amendment,  mutual fund units will come under the ambit of insider trading regulations and will result in applicability of SEBI PIT Regulations to mutual fund units.
2.	in regulation 2, in sub-regulation (1), in clause (l), after the word and symbol “subscribing,” and before the word “buying” the words and symbol “redeeming, switching,” shall be inserted and after the word and symbol “subscribe,” and before the word “buy”, the words and symbol “redeem, switch,” shall be inserted.	“trading” means and includes subscribing, buying, selling, dealing, or agreeing to subscribe, buy, sell, deal in any securities, and “trade” shall be construed accordingly;	“trading” means and includes subscribing, redeeming, switching, buying, selling, dealing, or agreeing to subscribe, redeem, switch, buy, sell, deal in any securities, and “trade” shall be construed accordingly;	With this amendment, definition of trading has been amended by including redeeming and switching of securities in it.
3.	in regulation 7A, in clause (d),   i. in sub-clause (iv), the word “and” shall be omitted.   ii. After sub-clause (iv) and before sub-clause (v), the following sub-clause shall be inserted, namely,- “iv(a) regulations 5A to 5G of these regulations; and”	‘insider trading laws’ means the following provisions of securities laws-   i. Section 15G of the Act;   ii. regulation 3 of these regulations;   iii. regulation 4 of these regulations;   iv. regulation 5 of these regulations; and   v. regulation  9  or  regulation  9A  of  these  regulations,  in  so  far  as  they  pertain  to trading or communication of unpublished price sensitive information.	‘insider trading laws’ means the following provisions of securities laws-   i. Section 15G of the Act;   ii. regulation 3 of these regulations;   iii. regulation 4 of these regulations;   iv. regulation 5 of these regulations; and   iv(a). regulations 5A to 5G of these regulations; and   v. regulation  9  or  regulation  9A  of  these  regulations,  in  so  far  as  they  pertain  to trading or communication of unpublished price sensitive information.	Detailed analysis provided under regulations 5A to 5G.

After Chapter II and before Chapter III, the following Chapter shall be inserted, namely-

CHAPTER – II A

RESTRICTIONS ON COMMUNICATION IN RELATION TO AND TRADING BY

INSIDERS IN THE UNITS OF MUTUAL FUNDS

Applicability (Regulation 5A):

(1) The provisions of this Chapter shall apply only in relation to the units of a mutual fund.   (2) All the provisions of Chapter IIIA and V shall also apply in relation to the units of a mutual fund.

Definitions (Regulation 5B):

5B. (1) For the purpose of this Chapter,   (a) “associate” shall have the same meaning assigned to it under the Securities and Exchange Board of India (Mutual funds) Regulations, 1996;

(b) “connected person” shall mean:   (i) any person who is or has during the two months prior to the concerned act been associated with the mutual fund, asset management company and trustees, directly or indirectly, in any capacity including by reason of frequent communication with its officers or by being in any contractual, fiduciary or employment relationship or by being a director, officer or employee of the asset management company and trustee or holds any position including a professional or business relationship with the mutual fund or asset management company or the trustees, whether temporary or permanent, that allows such a person, direct or indirect access to unpublished price sensitive information or is reasonably expected to allow such access;   (ii) Without prejudice to the generality of the foregoing, the persons falling within the following categories shall be deemed to be connected persons unless the contrary is established,   (a) an immediate relative of connected persons specified in clause (i); or   (b) Sponsor, holding company or associate company or subsidiary company of the Sponsor or Asset management company and Trustees; or   (c) Board of Directors and key management personnel of sponsor of the mutual fund; or   (d) Directors or employees of registrar and share transfer agents, custodians or valuation agencies of the mutual fund who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations; or   (e) an official or an employee of fund accountant providing services to a mutual fund who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations; or   (f) an official or an employee of a self-regulatory organization recognised or authorized by the Board; or   (g) an official of a stock exchange for dissemination of information; or   (h) Directors or employees of auditor, legal advisor or consultants of the mutual fund or asset management company who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operation; or   (i) an intermediary as specified in section 12 of the Act or an employee or director thereof who have access or are reasonably expected to have access to unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations; or   (j) a banker of the mutual fund or asset management company; or   (k) a concern, firm, trust, HUF, company or association of persons wherein a director of an asset management company and Trustees or his immediate relative or banker of the company, has more than ten per cent of the holding or interest;

(c) “generally available information” means information that is made available to the unitholders or made accessible to the public on a non-discriminatory basis;   NOTE: Generally available information is intended to be defined to crystallize and appreciate its meaning. Information published on the website of a stock exchange would ordinarily be considered generally available.   Explanation: The asset management companies/trustees shall immediately disseminate all material information on the platform of the stock exchange or in any other manner as may be specified by the Board, whenever the same needs to be communicated to the unitholders or a public notice needs to be made;

(d) “insider” means any person who is:   i. a connected person; or ii. in possession of or having access to unpublished price sensitive information pertaining to a scheme;

(e) “systematic transactions” in the units of mutual fund are those transactions which are automatically triggered for execution on a periodic basis as instructed by the investor including Systematic Investment Plans, Systematic Transfer Plans or Systematic Withdrawal Plans;

(f) “unpublished price sensitive information” shall mean any information, pertaining to a scheme of a mutual fund which is not yet generally available and which upon becoming generally available, is likely to materially impact the net asset value or materially affect the interest of unit holders and shall include the instances where there is a likelihood of:   i. a change in the accounting policy; ii. a material change in the valuation of any asset or class of assets; iii. restrictions on redemptions, winding up of scheme(s); iv. creation of segregated portfolio; v. the triggering of the swing pricing framework and the applicability of the swing factor; vi. material change in the liquidity position of the concerned mutual fund scheme(s); vii. default in the underlying securities which is material to the concerned mutual fund scheme(s).   Note: All other definitions in Chapter-I shall mutatis mutandis be applicable to transactions in the units of mutual funds.

Communication or procurement of unpublished price sensitive information and maintenance of a structured digital data base:

5C. (1) No insider shall communicate, provide, or allow access to any unpublished price sensitive information to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.   5C. (2) No person shall procure from or cause the communication by any insider of unpublished price sensitive information, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.   5C. (3) The board of directors of an asset management company with the approval of the Trustees shall make a policy for determination of “legitimate purposes”.   5C. (4) Any person in receipt of unpublished price sensitive information pursuant to a “legitimate purpose” shall be considered an “insider” for purposes of this chapter and due notice shall be given to such persons to maintain confidentiality of such unpublished price sensitive information in compliance with these regulations.   5C. (5) For the purpose of sub-regulation (4), the board of directors of an asset management company shall require the parties to execute agreements to contract confidentiality and non-disclosure obligations on the part of such parties and such parties shall keep information so received confidential, except for the purpose specified herein and shall not otherwise deal in the units of a mutual fund when in possession of unpublished price sensitive information.   5C. (6) The board of directors or head(s) of the organisation of every person required to handle unpublished price sensitive information shall ensure that a structured digital database is maintained containing the nature of unpublished price sensitive information and the names of such persons who have shared the information and also the names of such persons with whom information is shared under this regulation along with the Permanent Account Number or any other identifier authorized by law where Permanent Account Number is not available. Such database shall not be outsourced and shall be maintained internally with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database.   5C. (7) The board of directors or head(s) of the organisation of every person required to handle unpublished price sensitive information shall ensure that the structured digital database is preserved for a period of not less than eight years after completion of the relevant transactions and in the event of receipt of any information from the Board regarding any investigation or enforcement proceedings, the relevant information in the structured digital database shall be preserved till the completion of such proceedings.

Summary:   With this amendment, following actions needs to be taken:   The board of directors of an asset management company needs to make a policy for determination of “legitimate purposes”. Such policy shall be made with the approval of trustees. On basis of that policy, access of UPSI shall be provided by insiders.   The board of directors of an asset management company shall provide notice to any person who is in receipt of UPSI to maintain confidentiality. Further, the board of directors of an asset management company shall require parties to execute agreements to contract confidentiality and non-disclosure obligations which are expected from the parties who have received such information. Other than that, such persons shall also not deal in the units of mutual funds when in possession of UPSI.   The board of directors of the organization shall ensure that a structured digital database is maintained which contains name and PAN of persons who have shared along with persons to whom UPSI has been shared. Such database shall be maintained with adequate internal controls such as time-stamping, audit trails to ensure non-tampering of the database. Further, such data shall be preserved for a period not less than 8 years.

Trading when in possession of unpublished price sensitive information.

5D. (1) No insider shall trade in the units of a scheme of a mutual fund, when in possession of unpublished price sensitive information, which may have a material impact on the net asset value of a scheme or may have a material impact on the interest of the unit holders of the scheme:   Explanation –The dealings of a person in the units of a mutual fund when in possession of unpublished price sensitive information, shall be presumed to have been motivated by the knowledge and awareness of such information in his possession:   Provided that the insider may prove his innocence by demonstrating the circumstances including the following: –   (i) the transaction is an off-market inter-se transfer between insiders who were in possession of the same unpublished price sensitive information and both parties had made a conscious and informed trade decision:   Provided that such off-market trades shall be reported by the insiders to the asset management company within two working days. Every asset management company shall notify the particulars of such trades to the stock exchange or in any other manner as may be specified by the Board within two trading days from receipt of the disclosure or from becoming aware of such information;   (ii) such transaction in question was carried out pursuant to a statutory or regulatory obligation including subscription or investment in mutual fund units pursuant to the mandatory requirement specified by the Board for “Alignment of interest of Designated Employees of asset management companies with the Unit holders of the mutual fund schemes”;   (iii) such transaction in question is triggered by systematic transactions, where such systematic transactions are registered at least two months prior to such transaction;   (iv) such transaction in question is triggered by irrevocable trading plans, where such plan has been approved by the Compliance Officer and disclosed on the Stock Exchange platform or in any other manner as may be specified by the Board, at least sixty days before the commencement of trades:   Provided that the trading period for each plan shall be at least six months with no overlapping of different trading plans:   Provided further that for the trading as per the approved plan, no requirements/ norms related to pre-clearance of trading or closure period or contra trade shall be applicable.   (2) In the case of connected persons, the onus of establishing that they were not in possession of unpublished price sensitive information, shall be on such connected persons and in other cases, the onus would be on the Board.

Summary:   No insider in possession of UPSI shall trade in the units of a scheme of a mutual fund, which may have a material impact on the net asset value of a scheme or may have a material impact on the interest of the unit holders of the scheme:   Insider may prove his innocence by demonstrating the circumstances:   Transaction is an off-market transfer; Such transaction in question was carried out pursuant to a statutory or regulatory obligation; Such transaction in question is triggered by systematic transactions; such transaction in question is triggered by irrevocable trading plans;

Disclosures by certain persons

5E. (1) An asset management company shall, on such date as may be specified by the Board and on a quarterly basis thereafter, disclose the details of holdings in the units of its mutual fund schemes, on an aggregated basis, held by the Designated Persons of asset management company, trustees and their immediate relatives on the platform of Stock Exchanges or in any other manner as may be specified by the Board.   (2) Details of all the transactions in the units of its own mutual funds, above such thresholds as may be specified by the Board, executed by the Designated Persons of asset management company, trustees and their immediate relatives shall be reported by the concerned person to the Compliance Officer of asset management company within two business days from the date of transaction:   Provided that with respect to systematic transactions through any mutual fund scheme, Designated Persons may report the same only at the time of making the first installment of the transaction along with the period of such transaction and on modifications thereof, if any:   Provided further that no reporting is required if such transaction was pursuant to   a. subscription/investment in the mutual fund units pursuant to mandatory requirement specified by Board for “Alignment of interest of Key Employees („Designated Employees‟) of Asset Management Companies with the Unitholders of the mutual fund Schemes” or otherwise, where separate records are maintained by the Asset management company in this regard. Such transactions may be governed by Circulars/guidelines issued by the Board from time to time;   b. Any trading in overnight schemes, Index funds and Exchange Traded Funds.   (3) Transactions mentioned in sub-regulation (2), shall be disclosed by the asset management company on Stock Exchange or any other manner as may be specified by the Board within two business days of receipt of the same.   (4) The above disclosures shall be made in such form and such manner as may be specified by the Board from time to time. Summary:   An asset management company shall disclose on quarterly basis holdings of mutual fund units by the Designated persons, trustees and their immediate relatives on the Stock Exchanges.   Details of all transactions in the units of mutual fund above threshold as specified by Board executed by Designated persons, trustees and their immediate relatives shall be reported to the compliance officer of asset management company within two business days from the date of transaction.

Code of Conduct

5F. (1) The board of directors of every asset management company shall ensure that the chief executive officer or managing director shall formulate a code of conduct with their approval to regulate, monitor and report dealings in mutual fund units by the Designated Persons and immediate relatives of the Designated Persons towards achieving compliance with these regulations and, adopting the minimum standards set out in Schedule B1 to these regulations, without diluting the provisions of these regulations in any manner.   (2) The board of directors or head(s) of the organisation, of every other person who is required to handle unpublished price sensitive information relating to a mutual fund scheme or its units in the course of business operations shall formulate a code of conduct to regulate, monitor and report trading by their Designated Persons and immediate relative of Designated Persons towards achieving compliance with these regulations, adopting the minimum standards set out in Schedule C to these regulations, without diluting the provisions of these regulations in any manner.   Explanation – Professional firms such as auditors, accountancy firms, law firms, analysts, consultants, banks, valuation agencies, fund accountants, assisting or advising Asset Management Companies, Trustees, Registrars and share transfer agents, Custodians and Credit Rating Agencies shall be collectively referred to as “fiduciaries” for the purpose of Schedule C of these regulations.   (3) Every asset management company, intermediary and other persons formulating a code of conduct shall identify and designate a compliance officer to administer the code of conduct and other requirements under these regulations.

Summary:   The asset management company shall ensure that the code of conduct formulated aligns with the requirements set out in Schedule B1 and Schedule C and Insider trading regulations.

Designated Person

5G. (1) The board of directors of the asset management company and trustees shall in consultation with the compliance officer specify the Designated Persons to be covered by the code of conduct on the basis of their role and function in the organisation and the access that such role and function would provide to unpublished price sensitive information in addition to seniority and professional designation and shall include:   i. Head of the asset management company (designated as Chief Executive Officer/Managing Director/President or by any other name), ii. Directors of the asset management company or the trustee company, iii. Chief Investment Officer, Chief Risk Officer, Chief Operation Officer, Chief Information Security Officer, Fund Managers, Dealers, Research Analysts, all employees in the Fund Operations Department, Compliance Officer and Heads of all divisions and/or departments or any other employee as designated by the asset management company and/or trustees.   Explanation: Non-Executive Directors of the asset management company/trustee company or trustees who are in possession of / have access to any “unpublished price sensitive information”, shall also be deemed to be Designated Persons.   (2) Every other Intermediary and other persons shall in consultation with the compliance officer specify the Designated Persons to be covered by the code of conduct on the basis of their role and function in the organisation and the access that such role and function would provide to unpublished price sensitive information in addition to seniority and professional designation.

Summary:   The list of individuals mentioned above under Regulation 5G shall be covered under the definition of Designated Persons pertaining to Insider Trading restrictions for the units of mutual fund.

“SCHEDULE B1 (See Regulation 5F of Chapter – IIA) Minimum Standards of Code of Conduct for Mutual Funds to regulate, monitor and report trading by the Designated Persons in the units of own mutual fund schemes

The compliance officer shall report to the board of directors of asset management company and provide reports to the Chairman of the Audit Committee and to the trustees as may be stipulated by the board of directors, in any case not less than once in a year.The information shall be handled within the organisation on a need-to-know basis and no UPSI shall be communicated to any person except in furtherance of legitimate purpose. Designated Persons and immediate relatives of designated persons in the organisation shall be governed by an internal code of conduct governing dealings in units of the mutual fund.The compliance officer of the asset management company shall determine closure period during which Designated person is expected to have possession of UPSI. Such closure period shall be imposed. During such time, any requests to transact in the units of the mutual funds by the Designated Persons and/or their immediate relatives shall not be processed by the asset management company. The closure period restrictions mentioned in sub-clause (1) shall not apply in respect of transactions specified in clauses (i) to (iii) of the proviso to sub-regulation (1) of regulation 5D and in respect to the pledge of mutual fund units for a bonafide purpose, subject to pre-clearance by the compliance officer.The timing for re-opening of the closure period shall be determined by the compliance officer.When the closure period is not applicable, trading in the mutual fund units by Designated Persons and their immediate relatives including at the time of initiation of systematic transactions shall be subject to pre-clearance by the compliance officer, if the value of the proposed trades is above such thresholds.Prior to approving any trades, the compliance officer take a declaration that the applicant for pre-clearance is not in possession of any UPSI.The code of conduct formulated by the of the asset management company shall have pre-clearance for Designated Person to execute trade which shall not be more than seven business days, failing which fresh pre-clearance shall be required.The code of conduct shall also specify the period, which in any event shall not be less than two months, within which a Designated Person who is permitted to trade shall not execute a contra trade. The compliance officer may be empowered to grant relaxation from the strict application of such restriction for reasons to be recorded in writing provided that such relaxation does not violate these regulations or other requirements specified by the Board. The code of conduct shall also stipulate such formats for making applications for reporting of trades executed and for reporting level of holdings in units of mutual funds at such intervals as may be determined.The code of conduct shall stipulate the internal sanctions and disciplinary actions that may be imposed by the asset management company for the contravention of the code of conduct. Any amount collected under this clause shall be disgorged by the asset management company and credited to the Investor Protection and Education Fund established by the Board under the Act.The code of conduct shall specify that in case it is observed by the asset management company that there has been a violation of these regulations, it shall promptly inform to the stock exchange(s), in such form and such manner as may be specified by the Board from time to time.Designated Persons  shall be required to disclose names and Permanent Account Number or any other identifier authorized by law of the following persons to the mutual fund on an annual basis and as and when the information changes: a) immediate relatives b) persons with whom such Designated Person(s) shares a material financial relationship c) Phone, mobile and cell numbers In addition, the names of educational institutions from which Designated Persons have graduated and names of their past employers shall also be disclosed on a one time basis. Mutual funds shall have a process that would determine how an individual is brought, inside ‟ to access sensitive transactions and shall be made aware of the duties and responsibilities attached to the receipt of such Inside Information and the liability that is attached to the misuse or unwarranted use of such information.”

Sr. No.	Part/Regulation/ Chapter/Section /Sub-section(s)	Under Old Regulation	Under New Regulation	Comment
1.	In Schedule C, In Clause 8 after the words and symbol “contra trade.”, and before the words “The compliance officer” the following words and symbol shall be inserted, namely,- “In case of dealing in the units of mutual funds, the code of conduct shall specify the period, which in any event shall not be less than two months, within which a Designated Person who is a connected person of the mutual fund/asset management company/trustees and is permitted to trade in the units of such mutual fund, shall not execute a contra trade.”	The  code of conduct  shall  specify  the  period,  which  in  any  event  shall  not be less than six months, within which a designated person who is a connected person of the listed company and is  permitted  to  trade  in  the  securities of such listed company, shall not  execute  a  contra trade.   The compliance officer may be  empowered to grant relaxation from strict  application of such restriction  for  reasons  to  be recorded in writing  provided that such  relaxation does not  violate these  regulations.  Should  a contra trade be  executed, inadvertently  or  otherwise,  in  violation  of such a restriction, the profits from such trade shall be liable to be disgorged for remittance to the Board for credit to the Investor Protection and Education Fund administered by the Board under the Act.   Provided that this shall not be applicable for trades pursuant to exercise of stock options.	The  code of conduct  shall  specify  the  period,  which  in  any  event  shall  not be less than six months, within which a designated person who is a connected person of the listed company and is  permitted  to  trade  in  the  securities of such listed company, shall not  execute  a  contra trade.   In case of dealing in the units of mutual funds, the code of conduct shall specify the period, which in any event shall not be less than two months, within which a Designated Person who is a connected person of the mutual fund/asset management company/trustees and is permitted to trade in the units of such mutual fund, shall not execute a contra trade.”   The compliance officer may be  empowered to grant relaxation from strict  application of such restriction  for  reasons  to  be recorded in writing  provided that such  relaxation does not  violate these  regulations.  Should  a contra trade be  executed, inadvertently  or  otherwise,  in  violation  of such a restriction, the profits from such trade shall be liable to be disgorged for remittance to the Board for credit to the Investor Protection and Education Fund administered by the Board under the Act.   Provided that this shall not be applicable for trades pursuant to exercise of stock options.	With this amendment, SEBI has stipulated restriction on a Designated Person who is a connected person of the mutual fund/ asset management company/trustees and is permitted to trade in the units of such mutual fund and shall not execute a contra trade.
2.	In Schedule C, After clause 11, the following clause shall be inserted, namely- “11A. In case of dealing in the units of mutual funds, the code of conduct shall specify that in case it is observed by the intermediary or fiduciary required to formulate a code of conduct under sub-regulation (2) of regulation 5F, that there has been a violation of these regulations, such intermediary or fiduciary shall promptly inform the same to the stock exchange(s) in such form and such manner as may be specified by the Board from time to time.”	—-	11A. In case of dealing in the units of mutual funds, the code of conduct shall specify that in case it is observed by the intermediary or fiduciary required to formulate a code of conduct under sub-regulation (2) of regulation 5F, that there has been a violation of these regulations, such intermediary or fiduciary shall promptly inform the same to the stock exchange(s) in such form and such manner as may be specified by the Board from time to time.	In case of any violation of the code of conduct formulated by asset management company, it shall inform the same to the Stock Exchanges in such manner and form as specified by board from time to time.

Link to the Notification:

https://egazette.nic.in/WriteReadData/2022/240553.pdf