June 6, 2025

Automated Trading Window Closure for Immediate Relatives of Designated Persons - MMJC

Introduction The SEBI Circular SEBI/HO/ISD/ISD-POD-2/P/CIR/2025/55 dated April 21, 2025, significantly extends the automated trading window closure mechanism to include “Immediate Relatives” of Designated Persons (DPs) in listed companies, especially concerning the declaration of financial results. This is a crucial development in strengthening insider trading regulations in India. Here are some frequently asked questions (FAQs) that are likely to arise from this circular.

General Understanding and Scope:

Automated trading window closure is applicable to whom? SEBI Circular dt: April 21, 2025 on automated trading window closure is applicable to all Entities having their equity securities or securities convertible into equity shares listed on a recognized stock exchange. Listed entities would not include Infrastructure Investment Trust, Real Estate Investment Trust, and debt listed entities[1].

Is compliance officer still responsible for tracking trades of immediate relatives of designated person? Yes, compliance officer is still responsible for tracking of trades of designated persons and their immediate relatives for certain period. PAN freezing of designated persons and their immediate relatives for the purpose of automated trading window closure at ISIN level is required to be done on the designated depository portal at the end of the quarter. This PAN freezing begins from viz. July 1, Oct 1, Jan 1 and April 1. Listed companies may have to close trading window prior to this for the purpose of preparing of financials. For the period of closure of trading window by listed entity internally till PAN freezing of designated persons by depositories, tracking of trades would have to be done by compliance officer

Implementation and Compliance:

How will the automated trading window closure for immediate relative work? Once a designated person declares the PAN of their immediate relatives to the listed entity, these PANs will be uploaded on the designated depository portal by listed entity. Listed entity would then fix date of the board meeting and update the start date and end date of trading window closure in the system. Upon this PAN would be automatically frozen by the depositories and stock exchanges during the trading window closure period for the securities of listed company.
What information do listed entities need to provide for this automation? Listed entities are required to submit accurate and timely information relating to PAN of designated persons, their immediate relatives, and trading window closure dates to the designated depository.
What are the key timelines for implementation? The implementation of automated trading window closure would become applicable in a phased manner:
- Top 500 companies based on BSE market cap-italization as of March 31, 2025, listed on BSE, NSE and MSEI: July 1, 2025.
- All the remaining companies listed on BSE, NSE, and MSEI, as well as companies that get listed on stock exchanges after the issuance of this circular : October 1, 2025.
What are the responsibilities of Designated Persons [‘DP’]under the new framework? DPs must accurately declare and keep updated the PAN details of their Immediate Relatives with the listed entity. They should also be aware of the trading window closure periods.
What is the precise mechanism for “PAN-based trading freeze at the security level” for immediate relatives? Under PAN based freezing at security level for immediate relatives, securities linked to ISIN would be freezed in all demat accounts linked to that PAN. So if an individual is holding shares of ABC Ltd and he is DP for ABC Ltd then his PAN would be freezed for ISIN of equity shares of ABC Ltd. Even if he does not hold shares of ABC Ltd, his PAN would be freezed for ISIN of equity shares of ABC Ltd thereby disallowing him from dealing in shares of ABC Ltd.

Exceptions and Scenarios:

Are there any exemptions to the trading window closure for immediate relatives? The circular primarily focuses on automated closure for financial results. General defense under regulation 4 of SEBI PIT Regulations for trading window closures, such as trades pursuant to a pre-approved trading plan, off-market inter-se transfers between insiders (with specific conditions), or exercise of ESOPs (but not the sale of shares acquired through ESOPs), may still apply. However, the automated freezing mechanism might necessitate further clarity on how these exceptions are handled systemically.
If during trading window, issuer (listed entity) removed DP from the list due to cessation. Do they need to again delete from Trading Window tab as well, if yes, request you to please link this will addition deletion column? Issuer can delete name of DP from the list, but it will not be removed from trading window closure period. Issuers need to give exemption period for the same to that DP or else it will be unfrozen after the trading window period ends. The same process would be applicable to immediate relatives of DP also[1].
If a new DP joins during trading window closure period then PAN freezing for DP and his immediate relative would start from? If any new person joins, PAN freezing for DP and his immediate relatives will start two days after DP and his immediate relative PAN is entered in system driven disclosure database of designated depositories. All data for automated freezing would be taken from system driven disclosure data in designated depositories.
Can listed entity update addition of DP and / or his immediate relative in during trading window closure period? Yes, listed entity can update addition of DP and / or his immediate relative in depositories system during trading window closure period. But the freeze date will be accepted on T-2 basis from the date of addition[2]
Can an immediate relative trade during the closure period if they received pre-clearance earlier? No. Any pre-clearance obtained when the trading window was open becomes invalid once the trading window is closed. The automated freeze will override any prior approvals[3].
What about “immediate relatives” residing abroad, where PAN may not be applicable?
- In case PAN is not required to be taken by immediate relative of designated persons then demat account details needs to be given for these immediate relatives.
- If a designated person does not have PAN or a Demat account number, then such a person cannot trade in the Indian securities market. Hence, system driven disclosures will not trigger for such a person[4].
How will “notional” trading window closures (i.e., not triggered by system for financial results) be handled for immediate relatives? The circular specifically addresses automation for financial results. For other UPSI that may trigger a trading window closure but is not yet covered by the automated system, the responsibility to restrict trading by immediate relatives would likely continue to rest with the Designated Person and the Compliance Officer, similar to the pre-circular scenario for immediate relatives.