SEBI’s Structure Digital Database (SDD) Regulations: Key Aspects and Compliance Requirements

Key Takeaways:

1. Regulation 3(1) prohibits insiders from communicating or providing access to UPSI, except for legitimate purposes, performance of duties, or discharge of legal obligations.

2. The definition of “unpublished price sensitive information” includes information related to financial results, change in capital structure, mergers, acquisitions, and changes in key managerial personnel.

3. Regulation 3(5) mandates the maintenance of a structured digital database containing UPSI and the names of individuals involved in sharing the information, with a requirement for internal maintenance and preservation for a minimum of eight years.

4. Intermediaries/entities/fiduciaries are required to maintain a separate digital database containing shared UPSI and the individuals involved, with similar internal controls and preservation requirements.

5. Entries in the SDD cannot be altered or modified, and any necessary corrections must be made through separate entries with reference to the original entry and reasons for correction.

6. Compliance deadlines for submission of SDD compliance certificates are specified on a quarterly basis, with the requirement for certification by a Company Secretary or Company Secretary in practice.

7. SEBI has the power to inspect the SDD system with prior notice, and non-compliance may lead to appropriate actions initiated by the Exchanges.

Synopsis:

The Securities and Exchange Board of India (SEBI) implemented the SEBI (Prohibition of Insider of Trading Regulation) Rules, 2018 (PIT Regulations) on April 1st, 2019, which introduced the concept of the Structure Digital Database (SDD). This article delves into the pivotal aspects of SDD as mandated by SEBI.

Regulation 3(1): This regulation prohibits insiders from communicating, providing, or allowing access to any unpublished price sensitive information (UPSI) related to a company or securities listed or proposed to be listed, to any person including other insiders, except for legitimate purposes, performance of duties, or discharge of legal obligations. The definition of “unpublished price sensitive information” includes information related to financial results, change in capital structure, mergers, de-mergers, acquisitions, delistings, disposals, expansion of business, and changes in key managerial personnel.

Regulation 3(2): No person shall procure from or cause the communication by any insider of unpublished price sensitive information, except in furtherance of legitimate purposes, performance of duties, or discharge of legal obligations.

Regulation 3(5): The board of directors or head(s) of the organization of every person required to handle unpublished price sensitive information shall ensure that a structured digital database is maintained containing the nature of unpublished price sensitive information, the names of individuals who have shared the information, and the names of individuals with whom information is shared under this regulation, along with the Permanent Account Number or any other authorized identifier. The database shall not be outsourced and shall be maintained internally with adequate internal controls and checks to ensure non-tampering.

Regulation 3(6): The structured digital database is required to be preserved for a period of not less than eight years after the completion of the relevant transactions. In the event of receipt of any information from the Board regarding any investigation or enforcement proceedings, the relevant information in the structured digital database shall be preserved till the completion of such proceedings.

Intermediary/Entity/Fiduciary Requirements:Intermediaries/entities/ fiduciaries are required to maintain a separate Digital Database containing shared UPSI and the individuals involved, with similar internal controls and preservation requirements. Entries once made in SDD cannot be altered or modified and should be non-tampered. Any necessary corrections must be made through separate entries with reference to the original entry and reasons for correction.

Period of Compliance: Compliance certificates for SDD must be submitted on a quarterly basis, with specific deadlines for each quarter. For example, for Q2 FY 22-23, the deadline is by 18th November, 2022, and for Q3 FY 22-23, the deadline is by 21st January, 2023. These certificates must be certified by either a Company Secretary or a Company Secretary in practice.

Power to SE to Inspect the SDD System: SEBI has the power to inspect the SDD system with prior notice. If a company is non-compliant with respect to SDD, appropriate action shall be initiated by the Exchanges.

Manner of Submission: The manner of submission for SDD compliance certificates includes specific procedures for BSE and NSE, with detailed instructions for submission.

Conclusion: Understanding and adhering to SEBI’s regulations on Structure Digital Database (SDD) is imperative for entities dealing with Unpublished Price Sensitive Information. Compliance ensures transparency, accountability, and protection against potential regulatory actions. Entities must diligently follow the specified rules, deadlines, and submission procedures to maintain the integrity of their SDD systems.

FAQ:

Q1: What is the purpose of SEBI’s Structure Digital Database (SDD) regulations?

A1: The purpose is to regulate the handling and sharing of Unpublished Price Sensitive Information (UPSI) to ensure transparency and accountability in securities trading.

Q2: What are the key requirements for maintaining the SDD?

A2: The SDD must contain UPSI and details of individuals involved in sharing the information, and it must be preserved for a minimum of eight years with non-tampering controls.

Q3: What are the compliance deadlines for submission of SDD compliance certificates?

A3: The compliance certificates must be submitted on a quarterly basis, with specific deadlines for each quarter, and they must be certified by a Company Secretary or Company Secretary in practice.

Q4: What are the consequences of non-compliance with SDD regulations?

A4: Non-compliance may lead to SEBI-initiated actions, and entities are subject to inspection of their SDD systems with prior notice.