[Analysis] SEBI’s New UPSI Definition – Key Amendments for Transparency in Insider Trading

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By Taxmann
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Last Updated on 15 November, 2024

The recent amendment to the definition of Unpublished Price Sensitive Information (UPSI) by the Securities and Exchange Board of India (SEBI) aims to clarify and expand the events covered under the SEBI (Prohibition of Insider Trading) Regulations, 2015. SEBI's proposed changes align the UPSI definition with significant events and thresholds listed in Schedule III of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR), covering aspects like changes in ratings, fundraising, management control agreements, fraud or defaults by key personnel, forensic audits, and significant regulatory actions. This broader definition seeks to standardize compliance for listed entities, enhance transparency, and protect investor interests by ensuring timely disclosure of price-sensitive information.

Table of Contents

Introduction
Background and Rationale
Current Definition of UPSI
Key Proposals from SEBI
Conclusion

1. Introduction

On November 9, 2024, the Securities and Exchange Board of India (SEBI) released a consultation paper proposing a review of the definition of Unpublished Price Sensitive Information (UPSI) under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations). The proposals aim to enhance clarity, certainty, and uniformity in compliance for listed companies by aligning the UPSI definition with key events and thresholds outlined in Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

2. Background and Rationale

According to SEBI’s observations, listed entities inconsistently classified events as UPSI. Many companies adhered strictly to Regulation 2(1)(n) of PIT Regulations, omitting potentially sensitive events outlined in Regulation 30 of the LODR Regulations that impact market prices. SEBI’s study noted various gaps in defining UPSI, which affected uniform compliance and transparency. Therefore, the consultation paper proposes amendments to ensure compliance that aligns with PIT and LODR regulations.

3. Current Definition of UPSI

PIT Regulations define UPSI as follows:

As per Regulation 2(1)(n) of SEBI (PIT) Regulations, 2015, unpublished price sensitive information” means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to affect the price of the securities materially and shall, ordinarily including but not restricted to, information relating to the following:

financial results;
dividends;
change in capital structure;
mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other transactions;
changes in key managerial personnel.

4. Key Proposals from SEBI

The proposals put forth by SEBI’s Working Group (WG) and informed by public feedback aim to update the UPSI list to include specific events and information types. These proposals cover material events categorized under Schedule III of LODR, ensuring they are addressed in the UPSI framework.

Proposal No.	Proposed Inclusion	(Clause/Para/Schedule of LODR)	Comments
1	Inclusion of ‘Change in Rating(s)’	Clause 3 of Para A of Part A of Schedule III of LODR Regulations	New ratings are assigned to instruments issued by a listed entity. Such issuance would be covered either in the current UPSI definition as ‘change in capital structure’ or under the proposed inclusion’ fund raising proposed to be undertaken. Regarding revision in ratings, only significant rating changes (upward/downward) should be included in the UPSI list, as revalidations often don’t impact share prices.
2	Inclusion of ‘fundraising proposed to be undertaken’	Clause 4 of Para A of Part A of Schedule III of LODR Regulations	The decision on proposed fundraising is currently excluded from the UPSI definition; thus, it is proposed for inclusion in the illustrative list of UPSI events, as these may be price-sensitive.
3	Inclusion of ‘Agreements, by whatever name called, impacting the management and control of the company’	Clause 5 and 5A of Para A of Part A of Schedule III of LODR Regulations	The SEBI’s Working Group believes that only agreements impacting the company’s management and control and are known to the company should be considered price-sensitive and included in the UPSI events list.
4	Inclusion of ‘Fraud or defaults by a listed entity, its promoter, director, key managerial personnel, senior management, or subsidiary or arrest of key managerial personnel, senior management, promoter or director of the listed entity, whether occurred within India or abroad’	Clause 6 of Para A of Part A of Schedule III and Clause 9 of Para B of Part A of Schedule III of LODR Regulations	Fraud or default by key personnel or affiliates erodes investor trust and often impacts share prices. The update aligns with SEBI’s goal of promoting transparency and protecting shareholders by disclosing key information that might impact their investments.
5	Amendment in definition of UPSI to include the change in key managerial personnel, other than due to superannuation or end of term, and the resignation of a Statutory Auditor or Secretarial Auditor	–	It has been proposed that the definition of UPSI be amended under regulation 2(1)(n)(v) of the PIT Regulations. Specifically, the amendment would include any changes in the KMP, except those due to superannuation or the completion of the term, as well as the resignation of a Statutory Auditor or Secretarial Auditor. This amendment informs investors about leadership changes that could impact the company’s stability.
6	Inclusion of ‘Resolution plan/Restructuring/one-time settlement in relation to loans/borrowings from banks/financial institutions’	Clause 9 and 10 of Para A of Part A of Schedule III of LODR Regulations	Loan restructuring reflects a company’s financial health, impacting stock valuation and investor confidence. Further, this proposal aims to enhance transparency regarding critical financial restructuring activities, aiding stakeholders in assessing the company’s fiscal health.
7	Inclusion of ‘Admission of winding-up petition filed by any party/creditors, admission of application by the corporate applicant or financial creditors for initiation of corporate insolvency resolution process (CIRP) of a listed corporate debtor and its approval or rejection thereof under the Insolvency Code’	Clause 11 and 16 of Para A of Part A of Schedule III of LODR Regulations	These filings indicate significant risks to business continuity and shareholder value. Further, this will enable investors to make well-informed decisions regarding corporate solvency and potential outcomes in cases of winding up or insolvency.
8	Inclusion of ‘Initiation of forensic audit (by whatever name called) by the company or any other entity for detecting misstatement in financials, misappropriation/siphoning or diversion of funds and receipt of final forensic audit report’	Clause 17 of Para A of Part A of Schedule III of LODR Regulations	Forensic audits signal potential internal issues, directly impacting investor confidence and share value. This proposal aims to enhance transparency by disclosing any investigations affecting the company’s financial reporting.
9	Inclusion of ‘Action(s) initiated or orders passed by any regulatory, statutory, enforcement authority or judicial body against the listed entity or its directors, key managerial personnel, senior management, promoter or subsidiary, in relation to the listed entity’	Clause 19 and 20 of Para A of Part A of Schedule III of LODR Regulations	Regulatory actions or judicial orders may indicate compliance risks, impacting share prices and market sentiment. This proposed amendment aims to enhance transparency regarding key stakeholders’ regulatory or judicial status, thereby influencing investor sentiment.
10	Amendment in definition of UPSI to include ‘award or termination of order/contracts not in the normal course of business and such other transactions	–	It has been proposed that the definition of UPSI be amended under Regulation 2(1)(n)(iv) of PIT Regulations. Specifically, this amendment will include the award or termination of orders/contracts outside the normal course of business and other transactions, in addition to already existing ‘mergers, de-mergers, acquisitions, delistings, disposals and expansion of business’. Major contracts substantially impact revenue and profitability, influencing market perception. In the future, this amendment would provide shareholders with insights into notable business developments that could affect revenue streams and valuations.
11	Inclusion of ‘outcome of any litigation(s) or dispute(s) which may have an impact on the listed entity’	Clause 8 of Para B of Part A of Schedule III of LODR Regulations	Litigation outcomes directly affect operational stability, financial results, and share value. This inclusion will ensure transparency, allowing investors to assess potential financial and legal implications.
12	Inclusion of ‘Giving of guarantees or indemnity or becoming a surety, by whatever named called, for any third party’	Clause 11 of Para B of Part A of Schedule III of LODR Regulations	Such provisions may result in contingent liabilities that impact a company’s financials. This proposal aims to ensure market participants are informed of any potential financial obligations affecting the company’s financial position.
13	Inclusion of ‘granting, withdrawal, surrender, cancellation or suspension of key licenses or regulatory approvals’	Clause 12 of Para B of Part A of Schedule III of LODR Regulations	Regulatory changes can have significant operational and financial implications, influencing share prices. This proposed amendment aims to ensure timely disclosure of changes in regulatory status, which can directly impact share value.

5. Conclusion

The proposed amendments to the UPSI definition under SEBI’s PIT Regulations represent a proactive step toward achieving greater clarity and consistency in regulatory compliance for listed entities. By aligning UPSI events with the material events outlined in Schedule III of the LODR, SEBI aims to enhance transparency, protect investor interests, and establish a standardized compliance framework across industries.

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[Analysis] SEBI’s New UPSI Definition – Key Amendments for Transparency in Insider Trading

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