Understanding Blackout Periods

We often hear the news of the Securities Exchange Board of India(SEBI) barring entities and people from the stock exchange for participating in insider trading. Insider trading is malpractice of trading involving an ‘insider‘ based on Unpublicised Price Sensitive Information(UPSI). SEBI passed the Prohibition of Insider Trading(PIT) Regulations, 1992, and amended the clauses to protect investors’ interests and ensure market integrity. One of the measures in PIT regulation is imposing the Blackout Period or Trading Window Closure Period. Let us learn more about the Blackout period and other practices associated with insider trading.

What is the Blackout Period?

The blackout Period is the trading window closure period during which insiders who have access to inside information are barred from trading in the securities of the respective company.

According to PIT Regulations, SEBI instructs listed companies to close the trading window from the end of the financial period on which the results are to be announced until 48 hours after the announcement. It is done to prevent insider trading. For any other material inside information, SEBI has given the responsibility to the compliance officers of the listed companies to close the trading window or put in effect a Blackout period when the employees are reasonably expected to have possession of inside information.

The blackout period is introduced in the corporate policy to disallow insider trading at all times except during a trading window as per the PIT guidelines. It is the most critical policy to prevent insider trading

Note: According to PIT guidelines, a blackout period (closure of trading window) must be implemented when the following information is not made available to the public

● Declaration of financial results (quarterly, half-yearly and annually)

● Declaration of dividends (interim and final)

● Issue of securities by way of public/rights/bonus etc

● Any major expansion plans or execution of new projects

● Amalgamation, mergers, takeovers and buy-back

● Disposal of whole or substantially the whole of the undertaking

● Any changes in policies, procedures or operations of the company

Who is an insider?

According to PIT regulations, an insider is a person who,

(i) is or was connected with the company or is deemed to have been connected with the company and is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company,


(ii) has received or has had access to such unpublished price sensitive information

Who is a compliance officer?

According to PIT regulations, a compliance officer can be any senior-level employee reporting to the Managing Director/Chief Executive Officer. As Compliance Officers, they are responsible for setting forth policies, procedures, monitoring adherence to PIT guidelines, tracking trades, and implementing the code of conduct under the board’s overall supervision.

What is a trading window?

● The listed company can specify a “trading window” for trading in the company’s securities otherwise closed during the blackout period or the period in the note when the information is unpublished.

● The employees/directors are to not trade in the company’s securities in the blackout period.

● The trading window opens 24 hours after the information is made public. However, in the amendment to SEBI (Prohibition of Insider Trading) Regulations, 2015, the trading restriction period has been made applicable from the end of every quarter till 48 hours after the declaration of financial results

● All directors/officers/designated employees of the company has to conduct all their dealings in the securities of the company only in a valid trading window and shall not deal in any transaction involving buying or selling of company’s securities during the Blackout period or during any other period as may be specified by the company from time to time.

Note that the trading window restrictions will not apply to transactions conducted through other mechanisms as may be specified by the board from time to time as per the amendment to SEBI((Prohibition of Insider Trading) Regulations, 2015.

The blackout period is one of the efficient and effective policies to curb insider trading and safeguard market integrity. Listed companies must include the Blackout period in their corporate policy as per the PIT guidelines. In this article, we have discussed the Blackout period as a preventive measure. To learn more about insider trading, click here.