A stock market transaction qualifies as insider trading when one of the parties is in possession of UPSI. A party in possession of UPSI by virtue of their position in the company or their relationship with people in such positions in the company are treated as insiders. Any trade conducted by an insider while in possession of UPSI is treated as insider trading and is prohibited under SEBI(PIT) 2015. Insider trading, like any other offence, requires both a motive and means. In order to check the offence, the company and authorities should be able to identify individuals with both motive and means.
To identify men with means, the company shall identify everyone with access to UPSI. The SDD helps in identifying and storing information regarding:
- Every person with access to UPSI
- The point of time in which they obtained access to UPSI
- The point at which the UPSI becomes public.
This helps in detecting whether UPSI a person was in possession of UPSI when a trade under investigation was made. To identify men with motive, the company shall identify everyone who have committed trades directly or indirectly.
SDD helps in identifying and preserving data regarding the:
- Trading window closure
- Trades made by every designated person and insider during trading window closure.
- The trades made by person’s with personal or financial relationship with insiders.
SDD helps in storing following details regarding relationships of insiders and thereby recognize every insider with a motive to misuse UPSI:
- Names and Permanent Account Number or any other identifier authorized by law and Phone, mobile and cell numbers of the following persons to the company on an annual basis and as and when the information changes.
- Immediate relatives
- Persons with whom such designated person(s) shares a material financial relationship
- 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.
Further, maintaining SDD helps in intimating every insider when they comes to possess UPSI, to execute confidentiality agreements and to educate them in the code of conduct. Thus, SDD helps in identifying and checking violations of regulation, confidentiality agreement or code of conduct.
Also, SDD shall be reviewed by audit committee, board of directors and the compliance officer. This facilitates whistle blowing by employees even if companies fails to report insider trading.
Lastly, an SDD shall be maintained not just by a listed company but also by the intermediaries and fiduciaries. This helps the intermediaries, fiduciaries and authorities to track the employees in possession of UPSI. The client such UPSI belongs to as well as the trades conducted by such intermediary, fiduciary, their employees or relatives of such employees. As details of every employee in possession of UPSI of every client is recorded, such information can also be used to check the authenticity of the Chinese wall defense claims made by the intermediaries or fiduciaries.
Author: Adv Alby Stephan, Legal Executive at Legality Simplified