Economic disruptions caused by the coronavirus pandemic may have warranted several compliance and financial reporting relaxations, but experts and officials cautioned on Sunday that relaxing the mandatory closure of trading window for ‘insiders’ might go against the interest of investors.
There has been demand from promoters and others classified as insiders with regard to stock market trading that this restriction should also be relaxed as capital markets regulator has eased the timelines for filing of financial results for listed companies.
Under the Sebi’s Prohibition of Insider Trading Regulations, “Trading restriction period shall be made applicable from the end of every quarter till 48 hours after the declaration of financial results. The gap between clearance of accounts by audit committee and board meeting should be as narrow as possible and preferably on the same day to avoid leakage of material information.”
Accordingly, the trading window closure for insiders is already in place since April 1, though the timeline for filing of results for the quarter and year ended March 31 has been relaxed till June 30.
These are among the relaxations given by Sebi for listed companies and various market participants in light of the COVID-19 crisis and the ongoing nationwide lockdown.
While promoters and other insiders are demanding that the trading window should be opened for them as results would be announced later, officials and experts flagged such a relaxation would be detrimental to the interest of general investors as promoters and the top management, alongwith their associated entities, would already be in know of broader financial performance for the last quarter even if the actual results would get filed later.
Confirming that there have been requests seeking relaxation from the trading restriction period, a government official said the challenge for regulator Sebi was striking a balance between granting relaxations and ensuring market integrity.
Exchanges have already issued circulars regarding the trading window closure as Sebi did not accede to requests for any relaxation. Globally also, no such relaxation has been given by regulators in major markets. Information relating to financial results, unless made public, is deemed as unpublished price sensitive information (UPSI) and insiders who may have access to such UPSI are not allowed to trade.
“It would be incorrect to infer from the above developments that promoters and insiders cannot trade till June 30, 2020, as there is no mandate from Sebi to delay the financial results, instead a listed entity is free to stick to its timelines and open the trading window as per extant provisions of law,” the official said.
