Chief General Manager
Investigation Department
IVD/ID1/PKN/JJ/ /06
August 8, 2006
M/s Prodigy Investment Management
Division of MIV Investment Services Pvt. Ltd.,
4th Floor, Oricon House,
K. Dubash Road, Fort,
Mumbai – 400023.
Dear Sir,
Re : Request for Informal Guidance under Securities and Exchange Board of India (Informal Guidance) Scheme, 2003.
Please refer to your letter dated June 5, 2006 seeking informal guidance under the SEBI (Informal Guidance) Scheme, 2003 with respect to the provisions of SEBI (Prohibition of Insider Trading) Regulations, 1992 (said Regulations).
1. It has inter-alia been informed by you, vide your letter under reference that –
(a) Prodigy Investment Management, a division of MIV Investment Services Pvt. Ltd. is registered with SEBI as an advisory Portfolio Manager (SEBI Registration No:INP000001413). You only advise investment / divestment in securities and the decision to do so is taken by the client. It is the client’s prerogative to accept in full or part your advice.
(b) In light of your aforesaid submissions, you have sought informal guidance on the following:-
(i) Whether you have to follow regulations with respect to restricted grey list in terms of Clause 4.3 of Schedule I under Regulation 12(1) Part B of the Code of Conduct under the Regulations.
(ii) The same stock is recommended for regular top ups / cut downs based on movement in prices and when new clients register with you or when existing clients increase their corpus, a stock may again be recommended for buying. Whether scrip needs to be put on the restricted / grey list on each occasion that an advice to buy / sell is given.
(iii) In terms of point 5.2 of the Code of Conduct whether it is permissible for directors/officers/designated employees to invest in securities with a view to trade i.e. exit position in less than 30 days.
Contd.
(iv) Whether from the point of materiality you can exempt trades which were below an internally determined threshold limit as per Point 3.2 of the Code of Conduct pertaining to pre-clearance of transactions.
2. Without necessarily agreeing to your views our comments on issues raised by you are as under:
2.1 Our comments to issues raised at (i) and (ii)
As per clause 4.3 of Schedule 1, Part B specified under the said Regulations any security which is being purchased or sold or is being considered for purchase or sale by an organization/firm on behalf of its clients/schemes of mutual funds etc. shall be put on the restricted / grey list. If any security is put on the restricted /grey list, the organization/firm is restricted from trading in such securities designated in the said list. The clause 4.3 is broad and it includes any security which is being considered for purchase on behalf of its clients. The aforesaid clause containing the term ‘being considered for purchase or sale’ appears to include the advice given by the Portfolio Managers and therefore the restriction specified in the said clause is applicable in your case also. Further, in view of the said clause 4.3, a scrip needs to be put on the restricted /grey list on each occasion of advice.
2.2 Our comments to issues raised at (iii) and (iv)
As per clause 5.2 of the Schedule I Part B specified in the said Regulations all directors/officers/designated employees/partners of an entity shall hold their investments for a minimum period of 30 days in order to be considered as being held for investment purposes. Further, in terms of clause 3.2 -1 of the Schedule 1 Part B all directors/officers/designated employees of the organization/firm who intend to deal in securities of the client company (above a minimum threshold limit to be determined by the organization/firm) shall pre-clear the transactions as per the pre-dealing procedure as prescribed therein. As the said clauses are very clear and specific it has to be complied with by all the entities.
This position is based on the representation made to the Division in your aforesaid letter. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred.
You may note that the above views are expressed only with respect to the clarification sought on SEBI (Prohibition of Insider Trading) Regulations, 1992 and do not affect the applicability of any other law or requirement.
Yours faithfully,
P. K. Nagpal