As a high-ranking executive in a publicly listed company, you often find yourself privy to Unpublished Price Sensitive Information (UPSI). This could include knowledge about ongoing merger discussions, plans to establish new factories, or insights into quarterly sales performance—information not yet available to the public. To prevent unfair advantages and potential misuse of this information for personal gain, the Securities and Exchange Board of India (SEBI) has instituted rules against insider trading.
While executives typically receive a significant portion of their compensation in the form of company stock, the challenge arises when they are restricted from selling shares due to possessing UPSI. Financial planners may recommend using cash salary for daily expenses and retirement planning while selling stock at regular intervals. However, SEBI’s regulations complicate this process, leading to the introduction of Trading Plans as a solution.
A Trading Plan serves as an automated selling strategy, allowing executives to schedule predetermined sales of their company stock. This eliminates the risk of being accused of insider trading since the plan is established in advance. Despite the benefits, some executives have expressed dissatisfaction with the rigidity of these rules.
To address concerns, SEBI is considering adjustments to provide more flexibility for insiders to sell their shares. One proposed change involves incorporating a price limit within a predetermined range to protect against market fluctuations. Additionally, there is a suggestion to reconsider blackout periods, during which executives are currently restricted from buying or selling shares leading up to the announcement of quarterly earnings.
The need for blackout periods becomes questionable when Trading Plans are in place, as these plans already dictate the timing of stock transactions. To address this issue, SEBI is contemplating the removal of blackout periods associated with Trading Plans.
Another aspect under consideration is the minimum duration of Trading Plans. Currently mandated to run for at least 12 months, SEBI is exploring the possibility of reducing this duration to just two months. Additionally, the proposed cool-off period between proposing a Trading Plan and executing the first sale may be shortened from six months to four months.
If SEBI decides to implement these changes, it could streamline the process of insider selling, making it more adaptable to executives’ financial needs and market conditions.