Whether the Information Disclosed in Research/Analyst Report Amounts to Unpublished Price-Sensitive Information (UPSI)?

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SEBI (Prohibition of Insider Trading) Regulations, 2015, came into force on 15 May 2015 by repealing the existing SEBI (Prohibition of Insider Trading) Regulations, 1992. On 31st December 2018, following the recommendations of the Viswanathan Committee, SEBI adopted several changes to the PIT Regulations. As of 1st April 2019, these changes become effective. In addition, SEBI has also adopted several amendments, by its notifications dated January 21, 2019 and July 25, 2019 with immediate effect and by notification dated September 17, 2019 which is effective from 26th December 2019.


“Insider Trade” is an illegal activity used by private entities to benefit from such confidential knowledge about the company at the detriment of regular investors who have no access to those knowledges. The purpose of the new regulations is to discourage insider trading by preventing confidential or Unpublished Price-Sensitive Information (UPSI) from being managed, shared, consulted, or procured.

SEBI (Prohibition of Insider Trading) Regulations, 2015

Chapter II of SEBI (Prohibition of Insider Trading) Regulations, 2015, prohibits UPSI contact or acquisition, and insider trading when in possession of UPSI. It provides for exceptions with respect to communication/trading. The chapter further orders the execution of confidentiality arrangement and confidentiality intimation about UPSI.

Regulation 3 of PIT

Regulation 3(1) of PIT Regulations provides that no insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. Legislative Note: This provision is intended to cast an obligation on all insiders who are essentially persons in possession of unpublished price sensitive information to handle such information with care and to deal with the information with them when transacting their business strictly on a need-to-know basis. It is also intended to lead to organisations developing practices based on need-to-know principles for treatment of information in their possession.

Regulation 3(2) of PIT Regulations provides that no person shall procure from or cause the communication by any insider of unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. Legislative Note: This provision is intended to impose a prohibition on unlawfully procuring possession of unpublished price sensitive information. Inducement and procurement of unpublished price sensitive information not in furtherance of one’s legitimate duties and discharge of obligations would be illegal under this provision.

Regulation 3(2A) provides that the board of directors of a listed company shall make a policy for determination of “legitimate purposes” as part of “Codes of Fair Disclosure and Conduct” formulated under regulation 8.

Explanation – For the purpose of illustration, the term “legitimate purpose” shall include sharing of unpublished price sensitive information in the ordinary course of business by an insider with partners, collaborators, lenders, customers, suppliers, merchant bankers, legal advisors, auditors, insolvency professionals or other advisors or consultants, provided that such sharing has not been carried out to evade or circumvent the prohibitions of these regulations. A specimen policy for determination of legitimate purposes is placed at Annexure-III.

Regulation 3(2B) provides that any person in receipt of unpublished price sensitive information pursuant to a “legitimate purpose” shall be considered as an “insider” for purposes of these regulations and due notice shall be given to such persons to maintain confidentiality of such unpublished price sensitive information in compliance with these regulations. Background: Regulation 3 of the PIT Regulations prohibits the communication and procurement of UPSI, unless such communication / procurement is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. Since the term legitimate purpose has not been defined under PIT Regulation, it is open to various interpretations. However, entities are expected to develop practices / policies for responsible treatment of UPSI.

Regulation 3(5) provides that the board of directors shall ensure that a structured digital database is maintained containing the names of such persons or entities as the case may be with whom information is shared under this regulation along with the Permanent Account Number or any other identifier authorized by law where Permanent Account Number is not available. Such databases shall be maintained with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database.

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Regulation 4 of PIT

Regulation 4(1) of PIT Regulations provides that no insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information.

Regulation 4(2) of PIT Regulations provides that in the case of connected persons the onus of establishing, that they were not in possession of unpublished price sensitive information, shall be on such connected persons and in other cases, the onus would be on the Board.

Regulation 4(3) of PIT Regulations empowers the Board to specify such standards and requirements, from time to time, as it may deem necessary for the purpose of PIT Regulations.

The Information Disclosed in Research/Analyst Report Amounts to UPSI


On 22nd April 2020, 13th April 2020, and 26th March 2020, five orders were released by the Assessing Officer of Securities and Exchange Board of India (SEBI) against Kotak Mahindra Life Insurance Company Limited, Aditya Birla Sun Life AMC Limited, SBI Funds Management Private Limited, IDFC Asset Management Company Ltd. and BNP Paribas Asset Management (I) P Ltd. (AMCs) respectively, in the matter of their own motion. After receiving a research note from Ambit Capital Private Limited (Ambit) revealing UPSI on MFL, the AMCs had traded in MFL securities.

In March 2013, MFL expected adverse financial returns from its gold loans due to a collapse in gold rates and an under-recovery of Rs. 250 crores. The details were first discussed in the 13th March 2013,  board meeting. The management then contacted a research analyst, Ambit, on 18th March 2013 to address the future prospects and obtain business guidance. Ambit issued research reports to more than 2000 people on the morning of 19th March 2013, shifting MFL’s outlook from ‘invest’ to ‘under review’ and releasing details regarding adverse financial consequences and under-recovery.

MFL published a statement on its website on 19th March 2013, telling investors of a conference call to be held. The call was held from 2.30 p.m. to 3.40 p.m., where the creditors have been told of the financial reports. The following stock market intimation was made at night, that is, a drop in income numbers for the fourth quarter ended 31st March 2013. On 20th March 2013, a further statement was issued on the stock exchange minutes after trading hours to anticipate a one-time hit of Rs. 250 crores during this period either by way of crystallized profits not being earned or not planned to be obtained resulting in Q4 loss up to Rs. 50 crores. After receiving the research reports, the AMCs had sold their shares in MFL on 19th March 2013 and 20th March 2013. Show-cause notices were given to these AMCs under the SEBI Regulations (Prohibition of Insider Trading), 2015 (PIT Regulations) for trading while they were in control of UPSI and subsequently submitted replies.

In order to hold the AMCs liable for insider trading, it must be established that the information they received was unpublished and that they traded while having such UPSI. Under Regulation 2(n) of the PIT Regulations, “unpublished price-sensitive information” means any information, directly or indirectly, relating to a company or its securities which is not generally available and which, once generally available, is likely to have a substantial impact on the price of the securities and normally includes, but not limited to, information relating to the inter-securities.

The information about financial reports is also deemed to be price sensitive information and the information persists as UPSI until released by the company or its agents and is not of a particular nature. Looking at the nature of the financial information, SEBI was of the opinion that it was price sensitive information. Rather in this case, once the information became public, it resulted in a sharp fall in the share price.

Views of SEBI

SEBI was of the view that the information ceased to be released as soon as the article was circulated in the morning of 19th March 2013, to 2194 email addresses. The beneficiaries included Ambit clients and even finance news outlets. The inference was consistent with the N.K’s opinion. Sodhi Committee Report stated that a research report that is priced for purchase and made available to all stockbroker clients would be considered non-discriminatory in so far as any broker client or any class of broker clients with a certain risk profile could acquire that research report.


SEBI also analyzed the point that the details was public after, from 9.22 AM onwards, the television channel CNBC TV 18 reported the news in the third quarter about the MFL ‘s sales reversal problem and claimed that MFL was under pressure. SEBI applied to the SEBI Whole Time Member’s (WTM’s) order of 31st January 2018 in the case of Moon Technologies Limited, wherein the WTM held that a newspaper report in which the full and exact descriptions of the UPSI had been released was not of a theoretical sort, and hence the knowledge ceased to be UPSI from the date of such publication. SEBI found that the media coverage of MFL and the timing of such coverage by the well-known TV channel CNBC TV18 cannot be dismissed either as speculative in nature. The information disclosed and disseminated through the news channel in the conference call was the same as disclosed to the stock exchanges. SEBI has clarified the position that the disclosure of information to a large number of investors in a research report would imply that the information is now public. In fact, a news channel UPSI coverage dependent on reputable data will also amount to making the details public.

SEBI dealt with the charges relating to the AMCs and was of the opinion that the facts had ceased to be released by the time the AMCs had sold their shares. Ironically, the lawsuit against Ambit was dismissed by way of a consent order on 13th December 2019, and as of the date there is no order against MFL in this matter. As the material was already in the domain of UPSI when it was revealed to Ambit by MFL and the study report was released by Ambit, the individuals should have been liable for violation of the PIT Regulations.

While the material was considered to be released at the time of exchange, SEBI further delved into the issue of whether the AMCs could in such a case claim the protection of the innocent receiver. The PIT Laws allow for a rigid definition of insider trading and leave no room to consider situational considerations like the offender’s intent. When a person who has traded in securities has been in possession of UPSI, his trades are assumed to have been induced by the experience and understanding of this information in his hands, according to the clarification to Regulation 4(1).

Observations of SEBI

SEBI, therefore, observed that the act of selling the MFL script at that period was necessary in order to prevent substantial damages to the unit holders and behave in the best interests of the unit owners. It acknowledged that the management did not gain any financial profit, and AMCs may attribute the decline in share prices to the selling of shares. SEBI was of the view that the AMCs had behaved tirelessly like any other responsible institutional investor to prevent substantial losses on the unit holders.


SEBI has thus, discussed important questions about insider trade infringements that originate from UPSI spread by way of research reports. Researchers, being privy to sensitive details, are willing to supply their customers with trade tips that may potentially amount to insider trading. By clarifying that the publication of information in a widely circulated research report would make the information ‘public’ and introducing reliance on the innocent recipient’s defence, SEBI provides the necessary protection to receivers of the research reports. Hence, SEBI has also emphasized that, while taking an investment decision, a mutual fund has a fiduciary duty, such that the decision is in the best interest of its unit holders. However, for SEBI to require a similar defense in a future case, a detailed enquiry into facts will be appropriate.