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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Corporate and Economic Laws

Case: Lotus Retail Ltd, a listed company, finds that Mr. Verma, its chief financial officer, sold shares just before the company announced a major unexpected loss, which had not been made public. Mr. Verma knew of the loss through his position. Under the SEBI (Prohibition of Insider Trading) Regulations, 2015, how is Mr. Verma's position best described?

Mr. Verma is an insider because as CFO he is a connected person with access to unpublished price sensitive information. Selling shares while holding such information, before the loss is announced, is prohibited insider trading under the SEBI regulations, regardless of the trade being a sale or its size.

  1. AHe is an insider who traded while in possession of unpublished price sensitive information, which is prohibitedCorrect
  2. BHe is not an insider as only promoters can be insiders
  3. CHe is safe since selling shares, unlike buying, is not covered
  4. DHe is free to trade as long as the trade is under Rs 10 lakh

Explanation

A CFO is a connected person and an insider, and trading in securities while in possession of unpublished price sensitive information is prohibited, whether buying or selling. Insiders are not limited to promoters, and the regulations are not limited to buying. Small trades carry no blanket exemption.

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