The
In a recent order issued by the SEBI in
The Noticees argued, inter alia, that the information that was alleged to be UPSI was already in the public domain in the form of media reports. This argument was rejected by the SEBI.
It was not the first time that such an argument was made. It will likely not be the last. However, the backdrop is that the original 1992 regulations, and then the amendments in 2002 and 2015, have taken divergent approaches on this point. It has also not helped that the orders of adjudicatory authorities on this point have been inconsistent.
Order in the Matter of
On
Based on such news reports, the stock exchanges asked FRL to confirm whether any decision had been made by FRL's board. In response, FRL issued a clarification on
The Noticees contended that information regarding the scheme of arrangement could not be classified as UPSI since it was widely published and generally available across media platforms. Further, they argued that these reports were based on interviews that
Rejecting this argument, the SEBI held that the level of detail with which the scheme had been reported by the media was significantly lower compared to FRL's formal announcement. FRL's announcement contained statutorily mandated details including the proposed share-swap ratio, details of the securities that were proposed to be issued, and other particulars. The SEBI held that for information to be considered to be “generally available”, it must be disclosed in the form, and along with material particulars, that are required under statutorily mandated filings.
The Noticees have filed an appeal against the SEBI's order before the
Position under the 1992 Regulations and Prior Rulings
This is not a new issue. In one of the early cases under the 1992 Regulations,
In an appeal against the order, it was argued that the transaction had been widely reported in the news even before it had been formally announced. The Appellate Authority accepted this contention and found that expectations about the merger were widespread in the market before the transaction actually took place. Accordingly, the Appellate Authority held that the SEBI was not justified in prosecuting HLL and its directors. In arriving at this decision, the Appellate Authority relied on the definition of UPSI under the
Following the decision of the Appellate Authority, the 1992 Regulations were amended by the SEBI in 2002 to state that the term “unpublished” meant “information which is not published by the company or its agents and is not specific in nature.” Further, an explanation was added to state that “speculative reports in print or electronic media shall not be considered as published information.”
Position under the 2015 Regulations
Under the Insider Trading Regulations (2015) currently in force, information is considered to be unpublished when it is not “generally available”. “Generally available information” is defined as “information that is accessible to the public on a non-discriminatory basis”.
It is relevant that the explanation under the 1992 Regulations (as amended in 2002) which stated that speculative reports would not be considered published information did not find a place under the Insider Trading Regulations (2015). The N.K. Sodhi committee report which formed the basis of the 2015 Regulations states in this regard that: “Specifically, the suggestion (from some members of the Committee) was that unless information is published on the website of the stock exchange, it would not be regarded as generally available and therefore, if price sensitive in nature, it would be regarded as UPSI. The problem with this approach would be that even if large newspapers and television channels were to have published a piece of news and market participants were already factoring in the news in price discovery, an insider who trades when in possession of such news would be regarded as violating the law merely because the stock exchange website does not carry the news. The Committee believes that it would be inappropriate to regard information that is widely available in the public domain as UPSI” (emphasis supplied).
It is apparent that the SEBI's order in the case of FRL on the point at hand is more in line with the 1992 Regulations (as amended in 2002) rather than the 2015 Regulations currently in force.
A counterview to the SEBI's order in the FRL matter is the SEBI's order delivered a few months ago in
The SEBI's order in the
Conclusion
Keeping in mind the intent behind the Insider Trading Regulations which rests on the premise of parity of information, the conclusion of the SEBI in the FRL matter that information should be considered as “generally available” only when all material particulars are disclosed is sound and unimpeachable.
However, the question is whether the current regulations in force support such a view, particularly when considered in the context of the 1992 Regulations (as amended in 2002). After traversing a full circle, it may be time to put this issue to rest - the explanation regarding speculative reports in print or electronic media not constituting published or generally available information (which was included in the regulations in 2002 but omitted in 2015) may be a helpful addition. This would be even more relevant in 2021 in the age of social media where public confidence in the authenticity of media reports may not be at the same level as before.
Originally Published by
This insight/article is intended only as a general discussion of issues and is not intended for any solicitation of work. It should not be regarded as legal advice and no legal or business decision should be based on its content.
Mr
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