Introduction

Due to many entities taking part in the cobwebbed world of the stock market with multiple assets, asset management companies, firms, fund managers, portfolio managers, etc., things can sometimes stray away from the right direction. There can be times when unauthorised activities can take place. To avoid such activities and protect investors' interests, the Securities Exchange Board of India (SEBI) has strict regulations. One such initiative is UPSI. Understand what it is and how it impacts you as an investor in this blog.

What is UPSI?

UPSI by SEBI's full form is Unpublished Price Sensitive Information. It represents any critical information of a company that is not intended to be made public. If leaked, it can be after its share prices. Such internal matters can be specific details such as financial results, dividends, reformation, and modifications in the cap table. It may also include mergers and acquisitions, which can change the shape of its future, gradually.

For instance, let's say a private firm's financial documents are audited. These documents contain sensitive information. Only the key stakeholders and board of directors should have access to such information to make crucial decisions. This knowledge must be restricted to a person connected to the inner workings of the company. However, if this information gets out to the general public, they can use it to speculate on company performance and strategise the purchasing of shares. This can disrupt the market and give an unfair advantage. The phenomenon is also known as "Insider trading". With the UPSI framework, SEBI intends to control and regulate restrictions on it.

SEMI regulations where UPSI is permitted

The Regulations 3 sub-section (3) of the SEBI Regulations, 2015 allows UPSI procurement and communication in certain instances.

• In case of a takeover, where the related transaction and company valuation are made public to give input about its position.

• Despite no open offer under the takeover regulation, UPSI can be exercised by the board of directors. The disclosure is typically made at least two days before the proposed event. While doing so, the relevant facts and materials are to be covered.

Company's role in UPSI

The fundamental responsibility of a company is to preserve its UPSI. All of the key players, like the Managing Director, Chief Executive Officer, Compliance Officer, etc., need to have a robust system for internal information to restrict insider trading and ensure compliance with SEBI regulations. The company is accountable for the following aspects of managing UPSI:

• All stakeholders with access to UPSI must have a designated role. Any private individual or non-personnel can access information only after being affiliated with the board.

• All insiders must protect the sensitive information and limit divulging it to only those who need to know.

• A code of conduct policy is a must for the internal employees, their immediate family members, and other connected parties to prevent insider trading.

• The code of fair disclosures should include a procedure for determining the proper protocol for UPSI sharing.

• Having a well-structured database with a record of all the people in the firm who are privy to the UPSI.

• If the UPSI is detected, the trading window needs to be closed immediately. Also, even the suspicion of a designated person having access to UPSI warrants for closing of the trading window.

• The acquisition or spreading of UPSI must be restricted with certain limitations as per SEBI regulations, 2015.

• All the workers and stakeholders are aware of the UPSI and their contacts must be recorded. In case of such intimation, the parties privy to the information should sign a confidential agreement or a similar document.

• The regulations also highlight other related conditions concerning UPSI.

• Regular monitoring and review are required to understand if the internal controls are effectively working. A proper investigation of UPSI leaks must be conducted.

SEBI's consultation paper for UPSI

SEBI has developed a consultation paper in which it recognises shareholder agreements, joint venture deals, and other specific agreements. These agreements may affect the control or the management of the company. They can be one of the events that come under the UPSI definition.

SEBI has also covered corporate insolvency in its consultation paper. It includes the initiation or approval of such resolution plans by the tribunal. These resolutions should be discussed as price-sensitive information.

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Lastly, the launch of a forensic edit in cases of financial inconsistencies and false information should also be considered price-sensitive.

Conclusion

SEBI protects the interest of companies and potential investors with the ambit of UPSI. It strives to create a transparent and fair market environment. As noticeable, a wide range of agreements and information are covered in the SEBI's UPSI regulations. With this, you can confidently trade in the securities market. Keep yourself updated with the changes in such regulations to make informed decisions.

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