In recent orders passed by the Securities and Exchange Board of India (SEBI) regarding selective disclosure of unpublished price sensitive information (UPSI) by Manappuram Finance Ltd (MFL) in respect of: (i) Aditya Birla Sun Life AMC Limited; (ii) SBI Funds Management Private Limited; (iii) IDFC Asset Management Company Ltd; (iv) BNP Paribas Asset Management (I) P Ltd.; and (v) Kotak Mahindra Life Insurance Company Limited, SEBI considered the issue of whether trading by investors, based on analyst/research reports which contain UPSI, without knowing that such information is UPSI, would be considered insider trading. Leaning towards protecting the innocent investor in such cases, SEBI held that information shared with investors through research/analyst reports may be relied upon by such investors as being generally available information (i.e. not UPSI), even before specific disclosures/announcements are made by the company about it.
In this case, the analyst report contained a specific disclaimer that the recommendations in the report were based on publicly available information. However, in a situation where it could be shown that investors were aware that a report was based on UPSI, it is possible that SEBI would have investigated the role of the investors who would have traded based on such a report.
Besides recognizing that UPSI published in widely circulated analyst/research reports do not continue to remain ‘unpublished’, this order underlines the importance of investors paying close attention to the disclosed sources of information included in analyst reports and making sure there is no stated source of UPSI that forms the basis of their recommendations. Such an assessment would depend on the facts and circumstances of each case including:
SEBI concluded that the UPSI had become public information since (i) the analyst report was circulated to over 2000 clients, including news platforms; (ii) a news channel extensively covered the same, before disclosure was made to the stock exchanges. Therefore, trades executed based on such information would not be considered insider trading.
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