To strengthen the current regulatory procedures and deter insider trading practices in the Indian securities market, the Securities and Exchange Board of India (SEBI) furnished a circular to restrict trading by certain persons in listed companies. In furtherance, the circular dated 19 July 2023 directed extension in the prior system of freezing PAN of designated persons (DPs) of listed companies at the security level in a phased manner while assuring that their trading practices are in coherence with Clause 4 of Schedule B read with Regulation 9 of SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”). DPs can trade in a company's equity shares at the time when the trading window is open. A trading window aims to eradicate insider trading by closure in times of grave risk like prior to release of financial results.

Designated Person(s) includes the directors, promoters, and auditors along with employees and support staff of various departments like legal and accounts. Departmental heads, managerial personnel, and employees up to two levels below the Board of Directors of the company are in the ambit of being defined as DPs apart from the ones, specially assigned by compliance officers. By virtue of their association with listed companies, these persons are believed to have access to unpublished price-sensitive information (UPSI) pertaining to the trading process. PAN or Permanent Account number, being the sole identification number for conducting transactions in the securities market, is connected to the securities owned by DPs. In furtherance of close investigation of the DPs’ securities and demat accounts via collective actions of listed companies, designated depositories and stock exchanges, their PAN is frozen by the appointed depository. Trading window shall be closed for securities relating to the UPSI, thereby preventing designated persons and their immediate relatives from trading. Certain key provisions of the Circular are discussed below:

1. Designated Persons and Trading Window: As per Clause 4(2) of Schedule B read with Regulation 9 of PIT Regulations, trading restriction period shall apply from the end of every quarter till 48 hours after the declaration of financial results. Reasonable expectation of possession of UPSI can lead to closure of trading window while a notional trading window shall be employed as a tool for analyzing trading by the DPs.

2. Applicability: The initial circulars granted applicability of the discussed framework specifically to listed companies forming a part of the benchmark indices like NIFTY 50 and SENSEX. At par implementation in the chosen category along with consultations held with Stock Exchanges and depositories led to a superseding circular, extending the same to all listed companies.

3. Depository Responsibilities: It is the duty of depositories to take steps for implementation as well as bringing the circular to the notice of listed companies, ensuring dissemination of the same on their websites. The burden of submitting quarterly reports to SEBI for assessing the after-effects of regulatory provisions, is also loaded upon the depositories via provisions of the circular.

4. Timeline: The circular outlines a phased approach to implement the freezing PAN framework:

• Phase 1: Already in effect for companies listed in benchmark indices.

• Phase 2: Applicable to the top 1,000 corporations from October 1, 2023, based on BSE market capitalization as of June 30, 2023.

• Phase 3: Extended to the next 1,000 corporations based on similar criteria from January 1, 2024.

• Phase 4: Encompassing all remaining listed companies from April 1, 2024.

Newly listed companies are included, starting from the first day of the second quarter after their listing quarter.

5. Process of Implementation: The circular also offers a comprehensive process for implementing the frozen PAN system. The designated depository (DD) oversees provision of the listed company with access to the portal, evaluates the data provided by DPs, establishes the trading window closure timings, and communicates essential information to stock exchanges and other depositories. The DD grants access to the listed company on the portal or platform and makes sure that the information for DPs is accurately filled out. The DD also notifies the stock exchanges and other depositories of the trading window closure times after the listed business specifies them on the portal or platform.

The idea behind phased implementation is to ensure gradual adaptation to the new framework while eradicating disruptions and boosting compliance. The framework dissipated via the above-mentioned circulars, acts as a guidance for DPs when it comes to legitimate utilization of UPSI within the scope of legal obligations and duties. Violation of the code of conduct attracts severe actions as per SEBI regulations. SEBI’s commitment to protection of investor’s interests by promoting fairness and trust by preventing insider trading violations is a commendable effort toward bolstering market integrity.

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