SEBI: designated persons & their immediate relatives not to trade in securities when trading window is closed

SEBI: designated persons &their immediate relatives not to trade in securities when trading window is closed

The Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs. 2 lakhs for the violation of Clause 4 of Schedule B r/w Regulation 9(1) of SEBI (Prohibition of Insider Trading) Regulations, 2015, by the Noticee, Mr. Theekevedu B Alexander (designated employee of Titan Company Limited).

In this case SEBI had received a complaint from Titan Company Limited (Company), intimating that the Noticee had contravened the provisions of the SEBI (PIT) Regulations, 2015. When preliminary examination was conducted in the scrip of the company it was observed that the Noticee and his spouse had traded in the scrip of the Company when the trading window was closed and so, violated Clause 4 of Schedule B r/w Regulation 9(1) of SEBI (PIT) Regulations,2015.

It was urged by the Noticee that the impugned trades were executed under the bona fide belief that the trading window was open. It was also stated by the Noticee that he mistakenly assumed that the trading window closes when the 'silent period' starts, which is defined as the period beginning from the end of the quarter (post September 30, 2018 in the current factual situation) till the results are announced when the designated employees are prohibited from speaking to the media.

The Adjudicating Officer (AO) had found from the records that Mrs. Sarina Biju Alexander i.e. wife of the Noticee had traded on three trading days i.e. on 24th, 25th & 28th September, 2018 (period during which the trading window was closed).These trades executed by the Noticee and his wife were during the period which was much before ending of the quarter. Thus, it had been made clear by the AO that that the trades executed by the Noticee and his wife did not fall under the silent period.

It was also opined that the time of taking approval from the compliance officer by the Noticee for the alleged trades, the trading window was not closed and that the requisite approval was not given to the Noticee and his wife for executing trades during the period when trading window was closed. However, the same was executed by the Noticee during window closure period, which was in violation of provisions of Clause4 of Schedule B r/w Regulation 9(1) of SEBI (PIT) Regulations, 2015.

The AO also noted the heart and soul of compliance under Regulation 9 of PIT Regulations, 2015, falls on the shoulder of the Company, which has to educate the employees at all cadre falling under the category of designated employees about complying with the Regulation and also about the outcome of such non-compliance.

Hence, the excuse of the Noticee of not being aware of the closure of Trading window was an afterthought and thus, was rendered unacceptable under the current proceedings.

On perusal of recommendations of the Committee on Fair Market Conduct for bringing amendment to PIT regulations on "Code of Conduct for Listed Companies -Trading Window Restriction", it was observed that the committee was of the view that Unpublished Price Sensitive Information (UPSI) gets generated and insiders are likely to have access to UPSI after close of quarter till publication of financial results. Hence, trading window should be closed during this period.

With respect to the legal principle "Ignorantia juris non excusat", which means ignorance of the law is no excuse, the AO also opined that one cannot defend his /her actions by arguing that he / she did not know that their actions were illegal, even if one honestly did not realize that he / she were breaking the law. Therefore, contention of the Noticee that he was not aware about the closure of trading window could not be accepted under these proceedings.

It was also affirmed by the AO that in the instant case, the trading window was closed during the period September 23, 2018 to November 12, 2018. Thus, Mr. Theekevedu B Alexander by trading during such period violated Clause 4 of Schedule B r/w Regulation 9(1) of SEBI (PIT) Regulations, 2015for executing trades by himself and on behalf of trades executed by his wife, during the closure of trading window.