Trading Rules

Insider Trading

Insider trading is prohibited and is considered an offence. The SEBI (Prohibition of Insider Trading) Regulations, 1992 prohibit an insider from dealing (on his own behalf or on behalf of others) in listed securities when in possession of ‘unpublished price sensitive information’ or communicate, counsel or procure directly or indirectly any unpublished price sensitive information to any person who while in possession of such unpublished price sensitive information should not deal in securities. Price sensitive information is any information, which if published, is likely to materially affect the price of the securities of a company. Such information may relate to the financial results of the company, intended declaration of dividends, issue of securities or buy back of securities, amalgamation, mergers, takeovers, any major policy changes, etc. SEBI, on the basis of any complaint or otherwise, investigates/inspects the allegation of insider trading. On the basis of the report of the investigation, SEBI may prosecute persons found prima facie guilty of insider trading in an appropriate court or pass such orders as it may deem fit. Based on inspection, an adjudicating offic er appointed by SEBI can impose monetary penalty.

In order to strengthen insider trading regulations, SEBI mandated a code of conduct for listed companies, its employees, analysts, market intermediaries and professional firms. The insider trading regulations were amended to include requirements for initial and continual disclosure of shareholding by directors or officers, who are insiders, and substantial shareholders (holding more than 5% shares/voting rights) of listed companies. The listed companies are also mandated to adopt a code of disclosure with regard to price sensitive information, market rumours, and reporting of shareholding/ownership, etc.

Unfair Trade Practices

The SEBI (Prohibition of Fraudulent and Unfair Trade Practices in relation to the Securities Market) Regulations, 2003 enable SEBI to investigate into cases of market manipulation and fraudulent and unfair trade practices. These regulations empower SEBI to investigate into violations committed by any person, including an investor, issuer or an intermediary associated with the securities market. The regulations define frauds as acts, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person or agent while dealing in securities in order to induce another person with his connivance or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss. The regulations specifically prohibit dealing in securities in a fraudulent manner, market manipulation, misleading statements to induce sale or purchase of securities, and unfair trade practices relating to securities. SEBI can conduct investigation, suo moto or upon information received by it, through an investigation officer in respect of conduct and affairs of any person buying/selling/dealing in securities. Based on the report of the investigating

officer, SEBI can initiate action for suspension or cancellation of registration of an intermediary.

Takeovers

The restructuring of companies by way of takeover is governed by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. As per the regulations-

• No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise to exercise 15% or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the regulations.

• No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 percent or more but less than 55 percent of the shares or voting rights in a company, shall acquire, either by himself or through or with person acting in concert with him, additional shares or voting rights entitling him to exercise more than 5 percent of the voting rights, in any financial year ending on 31^{s t} March unless such acquirer makes a public announcement to acquire shares in accordance with the regulations.

• No acquirer, who together with persons acting in concert with him holds, 55 percent or more but less than 75 percent of the shares or voting rights in a target company, shall acquirer either by himself or though persons acting in concert with hi him any additional shares or voting rights therein, unless he makes a public announcement to acquire shares in accordance with the Regulations.

• Where an acquirer (together with persons acting in concert with him) holds 55% or more but less than 75% of the shares or voting rights in a target company, is desirous of consolidating his holding while ensuring that the public shareholding in the target company does not fall below the minimum level permitted by the Listing Agreement, he may do so only by making a public announcement in accordance with the Regulations.

• Irrespective of whether or not there has been any acquisition of shares or voting rights in a company, no acquirer shall acquire control over the target company, unless such person makes a public announcement to acquire shares and acquires such shares in accordance with the regulations. Provided that it does not apply to any change in control which takes place in pursuance to a special resolution passed by the shareholders in a general meeting.

• The public offer made by the acquirer to the shareholders of the target company shall be for a minimum twenty percent of the voting capital of the company and where the public offer is made under sub-regulation 2A of sub-regulation 11 the minimum size of the public offer shall be lesser of the following- (a) twenty percent of the voting capital of the company; or (b) such other lesser percentage of the voting

capital of the company as would, assuming full subscription to the offer, enable the acquirer, together with the persons acting in concert with him, to increase his holding to the maximum level possible, which is consistent with the target company meeting the requirements of minimum public shareholding laid down in the Listing Agreement.

The regulations give enough scope to existing shareholders for consolidation and also cover the scenario of indirect acquisition of control. The applications for takeovers are scrutinized by the Takeover Panel constituted by SEBI (Regulation 4). The public announcement to be made is required to be made in the newspaper. Simultaneously with publication of the public announcement in the newspapers, a copy of the same should be submitted to SEBI though merchant banker, to all the stock exchanges on which the shares of the company are listed for being notified on the notice board and to the target company at its registered office for being placed before the Board of Directors of the company.

Further, the regulations also deals with appointment of merchant banker, timing of public announcement of offer, contents of public announcement of offer, Offer price , Creeping acquisition, General obligations of the acquirer, General Obligations of the board of directors of the target company, General obligations of the merchant banker, Competitive bid etc.

Buy back

Buy back aims at improving liquidity in the shares of companies and helps corporates in enhancing the shareholders’ wealth. Under the SEBI (Buy Back of Securities) Regulations, 1998, a company is permitted to buy back its shares from:

a) the existing security holders on a on a proportionate basis through the tender offer,

b) the open market through stock exchanges, and book building process;

and

c) shareholders holding odd lot shares.

The regulations provide for extensive disclosures in the explanatory statement to be annexed to the notice for the general meeting and the letter of offer.

The company has to disclose the pre and post-buy back holdings of the promoters. With a view to ensure completion of the buy back process speedily, the regulations provide for time bound steps in every mode.

For example, as per the offer procedure prescribed under Regulation 10 an offer for buy back shall not remain open for more than 30 days and the verification of shares received in buy back has to be completed within 15 days of the closure of the offer. The payments for accepted securities has to be made within 7 days of the completion of verification and bought back shares have to be extinguished and physically destroyed within 7 days of the date of the payment.

To ensure security for performance of its obligation, the company making an offer for buy back will have to open an escrow account.

Price Bands

Stock market volatility is generally a cause of concern for both policy makers as well as investors. To curb excessive volatility, SEBI has prescribed a system of price bands. The price bands or circuit breakers bring about a coordinated trading halt in all equity and equity derivatives markets nation-wide. An index-based market-wide circuit breaker system at three stages of the index movement either way at 10%, 15% and 20% has been prescribed.

The breakers are triggered by movement of either S&P CNX Nifty or Sensex, whichever is breached earlier (please see chapter 5 for details). As an additional measure of safety, individual scrip-wise price bands have been fixed as below:

• Daily price bands of 2% (either way) on securities as specified by the Exchange.

• Daily price bands of 5% (either way) on securities as specified by the Exchange.

• Daily price bands of 10% (either way) on securities as specified by the Exchange.

• No price bands are applicable on: scrips on which derivative products are available or scrips included in indices on which derivative products are available. In order to prevent members from entering orders at non-genuine prices in such securities, the Exchange has fixed operating range of 20% for such securities.

• Price bands of 20% (either way) on all remaining scrips (including debentures, warrants, preference shares etc).

The price bands for the securities in the Limited Physical Market are the same as those applicable for the securities in the Normal Market. For auction market the price bands of 20% are applicable. There are no price bands for those securities which are available for trading in the Futures and Options segment and securities which form part of the indices on which trading is available in the Futures and Options segment.