SEBI
Topic62 PIT Code of Conduct Schedules B C
Code of Conduct for Insiders — Listed Companies & Market Intermediaries
Topic 62 — PIT Regulations Schedules B & C: Minimum Standards, Compliance Officer & Obligations | SEBI Law Officer
The Code of Conduct provisions under the PIT Regulations 2015 — implemented through Schedules B and C — create the institutional framework for insider trading prevention within listed companies and market intermediaries. Schedule B prescribes minimum standards for listed companies; Schedule C prescribes minimum standards for intermediaries and fiduciaries. The Compliance Officer is the central institutional actor — responsible for implementing the Code, maintaining the SDD, managing the trading window, and reporting violations to SEBI.
1. Regulation 9 — Requirement for Code of Conduct
Regulation 9(1): Every listed company, intermediary, and such other persons as may be specified shall formulate a code of conduct to regulate, monitor and report trading by their respective designated persons and immediate relatives in compliance with these regulations. The code of conduct shall incorporate the minimum standards as prescribed in Schedule B, in the case of a listed company and in Schedule C, in case of an intermediary. |
Key aspects of the Code of Conduct requirement:
- Who must have a Code: Every LISTED COMPANY + every SEBI-registered INTERMEDIARY. Both must frame separate Codes of Conduct.
- Minimum standards: The Code must at minimum comply with Schedule B (for listed companies) or Schedule C (for intermediaries). Companies may adopt higher standards — but cannot fall below the prescribed minimums.
- Designated persons: The Code must specify the class of designated persons — typically directors, KMP, promoters, and other employees identified by the compliance officer.
2. Schedule B — Minimum Standards for Listed Companies
Schedule B prescribes the following minimum standards for listed companies' Codes of Conduct:
Standard | Requirement |
|---|---|
1. Designation of Compliance Officer | A senior officer (typically CFO or CS level) to be designated as Compliance Officer. CO must report to MD/CEO; cannot be overruled on PIT compliance matters. |
2. Maintenance of lists of designated persons | Company must maintain an updated list of all designated persons and their immediate relatives — who are subject to Code restrictions. |
3. Trading Window Restrictions | Code must specify events triggering trading window closure and the post-disclosure opening period (48-hour standard). |
4. Pre-clearance of trades | Mandatory pre-clearance for designated persons whose trades exceed prescribed threshold (typically ₹10 lakh per trade). |
5. Reporting of trades | All trades by designated persons (above threshold) must be reported to the Compliance Officer within specified time. |
6. Structured Digital Database (SDD) | Code must require maintenance of SDD for recording all UPSI communications. |
7. Trading Plans | Code must enable designated persons to formulate and implement trading plans under Regulation 5. |
8. Restricting access to UPSI | Code must specify procedures for restricting access to UPSI on a need-to-know basis — information barriers, clean desks, secure data rooms. |
3. Schedule C — Minimum Standards for Intermediaries
Schedule C applies to all SEBI-registered intermediaries (stock brokers, merchant bankers, investment advisers, portfolio managers, etc.) and fiduciaries (trustees, custodians). The key differences from Schedule B:
- Intermediaries deal with multiple listed companies — their Code must cover UPSI received from ALL their clients.
- Information barriers (Chinese walls) are mandatory between different business divisions of the same intermediary — e.g., research division and trading division of a broker cannot share information freely.
- Designated persons of intermediaries include all employees who have access to client UPSI — not just senior management.
- Independent compliance function: intermediaries must have an independent compliance officer who is not part of the business divisions handling client UPSI.
4. The Compliance Officer — Central Institutional Role
The Compliance Officer (CO) is the most important institutional actor in the PIT compliance framework:
Function | Details |
|---|---|
Trading window management | Announces window closures (when UPSI is expected) and openings (48 hours after GAI). Maintains records of closures. |
Pre-clearance decisions | Reviews pre-clearance applications from designated persons; grants/refuses clearance based on window status and applicant's declaration. |
SDD maintenance | Oversees the Structured Digital Database — ensuring all UPSI recipients are recorded with time stamps. |
Restricted list maintenance | Maintains a list of securities in which trading by designated persons is currently restricted (due to UPSI possession). |
Reporting to Board/SEBI | Reports any violations of the Code of Conduct to the Board of Directors; reports suspected insider trading to SEBI. |
Investigating complaints | Receives and investigates reports from employees about suspected insider trading within the company. |
Training and awareness | Organises periodic training for designated persons on PIT Regulations and the company's Code of Conduct. |
5. Disclosures of Trades by Insiders — Regulation 7
Regulation 7(1): Every designated person shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a value exceeding Rs. 10 lakh or such other value as may be specified. |
Disclosure Requirement | Threshold | Timeline | To Whom |
|---|---|---|---|
Initial disclosure — promoters/directors/KMP (on appointment/designation) | Any shareholding | Within 2 WD of appointment | Company |
Continual disclosure — designated persons' trades | Trade value > ₹10 lakh (single or cumulative in quarter) | Within 2 WD of trade | Company |
Company disclosure to exchanges | After receiving insider's disclosure | Within 2 WD of receiving disclosure | All exchanges where listed |
6. Code of Fair Disclosure — Regulation 8
Regulation 8: Every listed company shall make prompt public disclosure of UPSI that would impact price discovery no sooner than credible and concrete information comes into being, in order to make such information generally available. |
Regulation 8 and Schedule A create the Code of Fair Disclosure — mandatory for all listed companies:
- Prompt disclosure of UPSI to exchanges — as soon as material events occur.
- Non-selective disclosure — information must be disclosed to ALL persons simultaneously, not selectively to institutional investors first.
- Analyst communications — conference calls, earnings calls must be recorded; transcripts/recordings must be made publicly available.
- No selective disclosure — if a company executive discusses UPSI with any person before exchange filing, that constitutes a violation of the Code of Fair Disclosure.
7. Key Landmark Cases
📖 SEBI v. Sourabh Lohia SEBI Order, 2020 Facts: A compliance officer of a listed company failed to maintain the Structured Digital Database as required — and also failed to report suspected insider trading within the company to SEBI. Held: SEBI found the compliance officer in violation of the Code of Conduct obligations under PIT Regulations. SEBI imposed penalty on the company and the compliance officer individually. The CO cannot take shelter behind the company for personal regulatory obligations. Ratio: The Compliance Officer has PERSONAL regulatory obligations under PIT Regulations — not merely corporate obligations. Failure to maintain SDD and failure to report suspected violations are independent violations attracting penalty. |
📖 SEBI v. Axis Bank Ltd. SAT Order, 2018 Facts: Axis Bank's investment banking division shared UPSI received from a client (in the course of a merger advisory mandate) with its equity research division — which then published a research report incorporating the non-public information. Held: SAT held that sharing of UPSI between divisions of the same intermediary — without information barriers — violates PIT Regulations and Schedule C's Code of Conduct. The investment bank's failure to maintain Chinese walls between its divisions was the root violation. Ratio: Schedule C's Chinese wall requirements are mandatory for intermediaries. Sharing client UPSI across divisions — even within the same organisation — violates PIT Regulations unless proper information barriers are in place. |
8. Model Examination Questions
Q1. What are the minimum standards prescribed in Schedule B of the PIT Regulations for listed companies? What is the role of the Compliance Officer?
Schedule B Minimum Standards & Compliance Officer Role Model Answer — SCHEDULE B MINIMUM STANDARDS for listed companies' Code of Conduct: (1) Designate a Compliance Officer (CO) — senior officer reporting to MD/CEO; independent on PIT matters; (2) Maintain updated list of designated persons and immediate relatives; (3) Trading window restrictions — specify closure triggers (quarter-end, board meetings on UPSI, M&A) and 48-hour post-disclosure opening; (4) Pre-clearance — mandatory for trades above ₹10 lakh threshold; designated person must declare no UPSI possession; (5) Reporting — all trades above threshold reported to CO within 2 WD; (6) Mandatory SDD — recording all UPSI recipients with time stamps; (7) Trading plans — enabling and facilitating Regulation 5 trading plans; (8) Access restriction — need-to-know basis, information barriers, secure data rooms. COMPLIANCE OFFICER ROLE: CO announces window closures/openings; grants/refuses pre-clearance; oversees SDD; maintains restricted lists; reports violations to Board and SEBI; investigates internal complaints; organises training. CO has PERSONAL regulatory obligations — SEBI v. Sourabh Lohia (2020) confirmed CO can be individually penalised for Code failures. SCHEDULE C for intermediaries additionally requires: information barriers (Chinese walls) between divisions; independent compliance function; all client UPSI recorded in SDD. SEBI v. Axis Bank (SAT 2018): failure to maintain Chinese walls between investment banking and research division = PIT violation. |
🎯 EXAM POINTERS — Topic 62: Code of Conduct [Schedules B & C]
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← Topic 61: Communication & Procurement of UPSI [Regulation 3] | Next → Topic 63: Structured Digital Database (SDD) — Requirements & Compliance
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