SEBI Proposes to Exapnd the Scope of UPSI- Learn Everything About UPSI

Securities and Exchange Board of India (SEBI) has recently proposed to widen the UPSI ambit. Before we check the details, let us understand what is UPSI ambit?

What is the UPSI ambit?

UPSI stands for Unpublished Price Sensitive Information. It refers to critical information related to a company's securities that has not yet been made public and could significantly affect its share price if disclosed. The SEBI governs UPSI under the Prohibition of Insider Trading Regulations, 2015 (PIT Regulations).

SEBI's Regulatory Framework Around UPSI

Here are some key elements of SEBI's regulatory framework around UPSI:

Prevention of Misuse: SEBI prohibits trading in securities while in possession of UPSI to prevent unfair advantages by insiders, a practice commonly known as insider trading.

Definition of Insider: Insiders can be:

Directors, employees, or connected persons who possess UPSI.
People with indirect access to UPSI, such as consultants, auditors, or legal advisors.

Disclosure Requirements: Companies must establish robust mechanisms to ensure timely disclosure of material information. This ensures transparency and protects retail investors from being disadvantaged.

Maintenance of Digital Records: SEBI mandates companies to maintain records of:

Insiders who accessed UPSI.
The purpose of sharing the information.

Changes Proposed: Consultation Paper

A recent study conducted by SEBI revealed that many listed entities were narrowly interpreting the term UPSI. Companies often confined their classification of UPSI to the explicit examples listed in the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations), overlooking the broader intent of the law.

This limited interpretation led to non-compliance with the law in spirit, raising concerns about inconsistent disclosures and potential misuse of sensitive information.

In a consultation paper, SEBI noted, "There exists a need to review the definition of UPSI to bring about regulatory clarity, certainty, and uniformity in compliance for listed companies." The regulator has proposed several additions to the illustrative list of events and decisions that would qualify as UPSI.

Proposed Additions to the Definition of UPSI

Fundraising Decisions: Any proposed fundraising activity, including equity or debt issuances, as well as significant upward or downward revisions in credit ratings, would be explicitly categorized as UPSI.

Corporate Insolvency and Loan Restructuring: Developments in corporate insolvency processes, including the approval of resolution plans, one-time settlements, or restructuring of loans and borrowings, would fall under the UPSI ambit.

Management and Control Agreements: Agreements affecting the management or control of a company, such as shareholder, joint venture, or family settlement agreements with price-sensitive implications, would now be included.

Fraud and Forensic Audits: Fraud, defaults, or any initiation of forensic audits related to financial misstatements, misappropriation, siphoning, or diversion of funds by the listed entity, its promoters, directors, or senior management would constitute UPSI.

Regulatory and Legal Actions: Any action initiated or orders passed by regulatory, statutory, or enforcement authorities or judicial bodies concerning the listed entity, its directors, senior management, or subsidiaries would be classified as UPSI.

Business Operations and Transactions: Events such as mergers, acquisitions, delistings, major business expansions, awards, or terminations of significant contracts outside the ordinary course of business would also qualify as price-sensitive information.

Licenses and Guarantees: The granting, withdrawal, surrender, suspension, or cancellation of critical licenses or regulatory approvals, as well as guarantees, indemnities, or sureties for third parties, would be explicitly included.

Before you go

SEBI has invited public comments on the proposed changes until November 30, 2024. These comments will help the regulator finalize the amendments to ensure that the definition of UPSI aligns with market realities and safeguards investor interests. This initiative shows SEBI’s commitment to strengthening corporate governance and ensuring fair play in the capital markets.