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Safeguarding price sensitive information

Published: 15 Apr 2018

There have been media reports that the financial results of the April-June 2017 quarter of certain companies was circulated on whatsapp groups even before they were revealed to public.

Circulation of any unpublished price sensitive information (UPSI) in the public prior to the official disclosure of such UPSI to the public is against public policy and violation of law.

Unfortunately, certain persons are divulging such UPSI with the greed and intent to satisfy their own personal needs and interests. Capital market has witnessed numerous instances of such cases. The following is the latest case in that series.

As a consequence, the Securities Exchange Board of India (SEBI) started probing into the leakage of UPSI in whatsapp groups. The SEBI steered the search and seizure operations in this regard at different places, including on the premises of entities involved in the leakage.

Granting access to non-management personnel to UPSI, dearth in classification of data, malware attacks and phishing activities are the principal reasons for the occurrence of leakage of UPSI in violation of company policies and laws.

In the light of the SEBI probe into whatsapp leakage, it is highly recommended that the companies’ closely monitor the acts of the employees having access to UPSI and limit/restrict such employees from accessing social media or instant messenger platforms during the sensitive time period.

Most of the companies articulate the policies with respect to the handling of UPSI, but do not build robust mechanism in place to restrict disclosure of UPSI and dedicated team for the strict enforcement of the UPSI policies is also one of the whys and wherefores for occurrence of leakage of UPSI.

Companies are highly recommended to employ the functionality of the technology controls to detect the insider of the company or intruder from outside of the company and brought such insider or outsider intruder to the notice of the SEBI.

Mere employing the technology controls won’t serve the purpose, from time to time the companies need to make it a routine practice to test and verify the effectiveness and accuracy of such controls in detecting insiders and intruders - to ensure that the adoption of the technology controls is the right weapon to detect insiders and intruders and to salvage the companies from the threat of unlawful disclosure of UPSI to the public.

To conclude, companies need to formulate strong policies relating to the handling of UPSI - right employment of dedicated legal and compliance team for the strict execution of such policies - educating the employees on the importance of protecting the UPSI from insiders and intruders – right imposition of technology controls and other reasonable restrictions on employees having access to UPSI will certainly aid the companies in safeguarding the UPSI from getting leaked into public and avoid any embarrassment of getting punished for violation of laws as a consequence of botch to thwart the unlawful disclosure of UPSI.

Research and inputs by Paruchuri Baswanth Mohan


About the Author:

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in "The A-List - India's Top 100 Lawyers" by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at bhumesh.verma@corpcommlegal.com

Firm: Addleshaw Goddard

Practice Area: Trade & Customs

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