Q. Who all are required to maintain SDD?
A: As per Regulation 3(5) of SEBI (PIT) Regulations, 2015, “The board of directors or head(s) of the organization of every person required to handle unpublished price sensitive information” (UPSI) is required to maintain SDD. Accordingly, every entity, which has issued securities which are listed/ proposed to be listed (as defined under Regulation 2(1)(hb) of the PIT Regulations, 2015) are required to maintain SDD, in case, such securities fulfil the definition of “Securities” under the Securities Contracts (Regulation) Act, 1956 as amended from time to time and subject to any such modification thereof.
Q. Whether an intermediary / fiduciary have to maintain SDD?
A. Intermediaries and fiduciaries including Professional firms such as auditors, accountancy firms, law firms, analysts, insolvency professional entities, consultants, banks etc. shall maintain SDD for recording details of:
a. The UPSI shared and persons with whom such UPSI is shared
b. The UPSI shared and the persons who have shared such UPSI with the intermediary/ fiduciary / entity.
c. SDD shall also be maintained by the intermediary/ fiduciary / entity for unlisted companies for which securities are proposed to be listed.
Q. What shall be the trigger point for inserting a record in the SDD?
A: Sharing of an unpublished price sensitive information internally or externally is the trigger for recording the same in the SDD.
Q. What is UPSI?
A: Regulation 2(1)(n) of the PIT Regulations, 2015 defines UPSI. The list provided in the definition of UPSI is illustrative. However, in order to determine whether an information is a UPSI, the following needs to be seen:
- The information is not publicly available; and
- Irrespective of magnitude of the contract/ transaction/ information, if the information on becoming publicly available is likely to materially affect the price of the securities.
The UPSI ordinarily includes, but is not restricted to, information relating to the following: –
(i) Financial Results;
(iii) Change in capital structure;
(iv) Mergers, De-mergers, acquisitions, delisting’s, disposals and expansion of business and such other transactions;
(v) Change in key managerial personnel
(vi) Proposal for change in capital structure; Mergers, De-mergers, acquisitions, delisting’s, disposals and expansion of business and such other transactions laid before committees;
Q. When is UPSI Germinated?
A: When the information starts taking shape of a price-sensitive information i.e., where the probability of going ahead with the information/concerned event is higher than not going ahead and such information is likely to “materially” affect the prices of the securities of the company when published, sharing of such information shall be recorded in the Database.
Q. Whether sharing of UPSI internally be recorded in SDD or records shall be maintained only when it is shared outside organization.
A: Irrespective of whether an UPSI is shared internally or externally, necessary recording should be made in SDD.
The intent of maintaining SDD is that the flow of sharing of UPSI is recorded. SDD needs to contain the names of the person(s) with whom UPSI has been shared. This means that entry should be made upon sharing the information so as to ensure that the same is not missed subsequently and captures the event.
For e.g.: while finalising financial results for say quarter ended September 2022, one entry can be made for the persons in the accounts department at the start of the finalisation process. Additionally, if UPSI is shared with Auditors, then the details of the audit firm, the senior partner and other entities of audit firm with whom UPSI is shared, need to be recorded. The audit firm, in turn, must maintain SDD accordingly.
There is no need to record sharing of UPSI by one designated person to another designated person when both parties already have access to such information.
Q. What are the requirements for maintaining the SDD?
A: The Database shall not be outsourced and shall be maintained with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database. The same is prerequisite for compliance with Regulation 3(5) & 3(6) of PIT Regulations, 2015.
Entries once made in SDD, cannot be altered or modified and should be non-tampered. Any modification/alteration of entries once made is not permitted. If any entry made needs to be altered, then a separate entry can be made citing reference to the earlier one with full corrected details and the reasons for correction.
Q. Who shall have access to insert the details of UPSI in the Database?
A: Regulation 3(5) and 3(6) of PIT Regulations, 2015 mandates that the Board of Directors or the head(s) of the organization of every person required to handle unpublished price sensitive information shall ensure that the Database is maintained as per the requirements of the PIT Regulations, 2015.
Therefore, putting a system in place to capture and record the SDD, in terms of the PIT Regulations, 2015 is to be implemented by the Board of Directors or the head(s) of the organization of every such person. Further, the Board of Directors or the head(s) of the organization of every such person is also required to determine who is to be given access to the same.
One important aspect of the SDD is that knowledge of UPSI should be available to a person only on ‘need to know’ basis. Further, the identity of the person accessing the database is required to be established for the purpose of audit trail.
Q. In case of multiple group companies, whether the SDD should be maintained separately?
A: As per Regulation 3(5) of the PIT Regulations, 2015, the company shall maintain the SDD internally with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database. It is understood that every company shall maintain an independent SDD to comply with these prerequisites as prescribed by the PIT Regulations.
Q. What are the implications of non- availability of PAN?
A: The Database shall be maintained with such details as sought under provisions of Regulation 3(5) of the PIT Regulations, 2015. Therefore, it is imperative to capture the PAN details wherever available, else any other identifier of such person shall be captured.
Q. Can external software be purchased for maintenance of SDD?
A: Yes, A software can be used to maintain the SDD. However, the same has to be maintained internally.
Q. Are companies under Corporate Insolvency Resolution Process (CIRP) required to maintain SDD?
A: Yes, for additional clarity please refer answer to para 1 above. Further, Circular No. IP/002/2018 dated January 03, 2018 issued by IBBI makes it mandatory on the Resolution Professional to ensure compliance with all applicable laws.
Q. What are the details of UPSI to be uploaded in the SDD ?
The details of UPSI to be uploaded includes:
- Date and time of Sharing
- Nature of UPSI shared
- Mode of Sharing
- Purpose of sharing UPSI.
- Recipient individual or entity
- process for how and when people are brought ‘inside’ on sensitive transactions
Q. Who all qualify as designated persons?
A. Designated person is someone with access to UPSI as identified by the company in the code of conduct.
As per standard practice, this list includes:
- All the Directors of the Company;
- Promoters and members of Promoter Group;
- Key Managerial Personnel of the Company;
- Chief Administrative officer / Chief Operating Officer
- All other employees of the Company and its material subsidiaries and associate companies, irrespective of their cadre working in accounts, finance, information technology, treasury, taxation departments, secretarial, legal and compliance departments, internal audit department, business / investor’s relations and corporate communications department, and chief executive officer / managing director’s office and chairman’s office and Persons employed on contract basis and performing similar roles or having similar responsibilities.
Q. What are the details of designated persons to be uploaded in the SDD ?
A: Following Information about designated persons shall be collected before disclosure of UPSI:
- Permanent Account Number or any other identifier authorized by law
- immediate relatives
- persons with whom such designated person(s) shares a material financial relationship
- Phone, mobile and cell numbers which are used by them
- 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.
So following information shall be captured in UPSI for good compliance.
Explanation: “Immediate relative” means a spouse of a person, and includes parent, sibling, and child of such person or of the spouse, any of whom is either dependent financially on such person, or consults such person in taking decisions relating to trading in securities.
The term “material financial relationship” shall mean a relationship in which one person is a recipient of any kind of payment such as by way of a loan or gift [from a designated person] during the immediately preceding twelve months, equivalent to at least 25% of the annual income of such designated person]but shall exclude relationships in which the payment is based on arm’s length transactions.
Q. What information should a listed Company maintain in its structured digital database under Regulation 3(5), in case the designated person is a fiduciary or intermediary?
A. The listed company should maintain structured digital database internally, which shall contain information including the following:
(i) Details of the Unpublished Price Sensitive Information (UPSI);
(ii) Details of persons with whom such UPSI is shared (along with their PANs/other unique identifier) and details of persons who have shared the information.
Similarly, another structured digital database should be maintained internally by fiduciary or intermediary, capturing information as mentioned above at point (i) and (ii), in accordance with Regulation 9A(2)(d) and as required under Schedule C.
For example: The listed company (X) has appointed a Law firm or Merchant Banker (Y) in respect of fund-raising activity and (A) from listed company has shared the said UPSI with (B) of Law firm or Merchant Banker.
The structured digital database of (X) should capture the nature of UPSI shared, details of (A), (Y and (B), along with their PAN or other unique identifier (in case PAN is not available).
The Law firm or the Merchant Banker (Y) shall in turn maintain another structured digital database internally capturing the nature of UPSI received/ shared, details of (X), (A) and (B) along with their PAN or other unique identifier (in case PAN is not available), in accordance with Regulation 9A(2)
Q. For how long the company needs to maintain the data in its structured digital database?
A. As per Regulation 3(6) of SEBI (PIT) Regulations, the structured digital database shall be 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 SEBI regarding any investigation or enforcement proceedings, the relevant information in the structured digital database shall be preserved till the completion of such proceeding.
Nominee directors sharing information to their bank or financial institution for legitimate purpose, will it be covered as communication of UPSI?
If the directors fall under the list of designated persons or as an insider, then sharing of UPSI by them for legitimate purpose with the Bank/FIs, would be considered as communication of UPSI. Accordingly, the same would be recorded in the structured digital database of the company.
Q. Who shall qualify as an insider ?
- “insider” means any person who is:
- a connected person;
- in possession of or having access to unpublished price sensitive information;
“connected person” means,-
(i)any person who is or has during the six months prior to the concerned act been associated with a company, 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 an employee of the company or holds any position including a professional or business relationship between himself and the company whether temporary or permanent, that allows such person, directly or indirectly, 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).a holding company or associate company or subsidiary company; or
(c).an intermediary as specified in section 12 of the Actor an employee or director thereof; or
(d).an investment company, trustee company, asset management company or an employee or director thereof; or
(e).an official of a stock exchange or of clearing house or corporation; or
(f).a member of board of trustees of a mutual fund or a member of the board of directors of the asset management company of a mutual fund or is an employee thereof; or
(g).a member of the board of directors or an employee, of a public financial institution as defined in section 2 (72) of the Companies Act,2013; or
(h).an official or an employee of a self-regulatory organization recognized or authorized by the Board; or
(i).a banker of the company; or
(j).a concern, firm, trust, Hindu undivided family, company or association of persons wherein a director of a company or his immediate relative or banker of the company, has more than ten percent. of the holding or interest.
Alby Stephan. K, Legal Executive at Legality Simplified
(Disclaimer: The FAQ is restricted to the legal implications as they stand on day of publication and is solely on the basis of SEBI (PIT) Regulations and does not adhere to any other laws or good business practices. There can be no assurance that the regulatory authorities would not take a position contrary to our comments.)