10 clsp investments and insider trading

7/31/2019 10 CLSP Investments and Insider Trading

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Investments and Insider Trading

Investments in Associated Companies and undertakings u/s. 208

Company can make investment1 in any of its associated companies/undertakings Conditions

o Authorized by special resolution indicating Nature, period & amount of investment, Terms; and Conditions attached

o Rule 15 of companies Rules, 1985 requires filing of resolution within 15 days of passing With registrar In case of listed company, also Commission.

o Return on investment in the form of loan shall not be less than the borrowing cost. Change in nature or the terms & conditions attached to investments shall be made under

authority of a special resolution.

Exceptionso Commissions may

Specify class of companies/undertakings to which the restriction shall not apply. Through regulations specify such conditions and restriction on nature, period &

amount of investment.

Investments of company to be held in its own name u/s. 209

All investments made by a company on its own behalf shall be made and held by its own name;and

If not so before the commencement of Companies Ordinance, Company shall within 1 yeareither

o Dispose; oro Transfer to its own name

Conditionso Certificates or Allotment letter relating to securities in which investment have been made

shall be kept by

The Company; or Approved Financial Institutions or Scheduled Bank

o Where Company is not allowed to hold investments in its own name, it shall forthwithenter in a register maintained for the purpose

The nature, value and such other particulars necessary fully to identify suchsecurities; and

The bank or person in whose name or custody name or custody such shares orsecurities are held.

Such Register kept shall be open to inspection of Member Debenture holder; or Creditor during business hours not less than two hours each day.

1Investment: The expression shall include loans, advances, equity by whatever name called, or any amount

which is not in the nature of normal trade credit.


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State provisions restricting company to hold investment in its own name

1) Where the company has a right to appoint or get elected any person as a director of any othercompany and such nominee is appointed or elected, the shares in such other company (not

exceeding the nominal value of qualification shares) may be registered or held

a) jointly by such company & such person appointed or nominee; orb) In the name of such person and nominee alone

2) A holding company hold any shares in its subsidiary company in the name of its nominee ornominees if and in so far as it is necessary so to do for ensuring that the number of members ofthe subsidiary company is not reduced below

a) 3 in case of public company orb) 2 in case of private company

3) A company whose principal business is the purchase and sale of securities shall not hold suchsecurities in its own name

Introduction and Concept of Insider Trading

Blank selling and short selling are two ways of profiting from a falling stock market. Essentially, the

seller first sells the securities and then buys them back at a lower price, netting the difference. For

instance, if you sell 500 shares of Hubco at Rs 32 and buy them back at Rs 30, you would have

earned Rs 2/share.

Blank and short selling often have been held partially responsible for many a stock market crisis

internationally. Blank selling is prohibited in every stock market while short selling is usually

tightly regulated.

The distinctions among a sale, a short sale, and a blank sale are made by the Regulations governing

short selling in the ready market that were implemented in 2002.

A sale is not subject to any special restrictions if it is backed byo ownership of shares oro

a buy transaction before a sell transaction A sale becomes a short sale if you didnt own the shares or hadnt first executed a buy

transaction but had arranged for borrowing the shares before you sold them.

A sale becomes a blank sale if you hadnt even borrowed the shares sold, i.e. you just sold inthin air.

Important Concepts & Definitions

Auditor: Where such auditor is a firm, include all partners of such firm.

Beneficial Ownership of Securities: Beneficial ownership of securities of any person shalldeemed to include the securities beneficially owned, held or controlled2 by him or his spouse or by

any of his dependent lineal3

ascendants or descendants not being himself or herself a person who isrequired to furnish a return under section 222, and

In the case where such person in a firm, shall be deemed to include the securities beneficiallyheld by such firm; and

In the case where such person is a shareholder in a private company, shall be deemed toinclude the securities beneficially held by such company.

2Control: In relation to securities means the power to exercise a controlling influence over the voting power attached

thereto.3Lineal: That which come in a line. Lineal consanguinity is that which subsists between persons, one of who is descended in

a direct line from the other.


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Dealing in Securities: Means an act of buying, selling or agreeing to buy, sell or deal in anysecurities by any person either as principal or agent;.

Insider: Meansa) A person who is a director, chief executive, managing agent, chief accountant, secretary or

auditor of a listed company or the beneficial owner holding directly or indirectly not less

than 10% of the shares of a listed company; or

b) A person who, is or was connected with the company or is deemed to have been connectedwith the company, and who is reasonably expected to have access, by virtue of suchconnection, to unpublished price sensitive information in respect of securities of the

company who has received or has had access to such unpublished price sensitive

information;

Law on blank and short

Under Regulations governing short selling in the Ready Market

Blank selling is prohibited. Short sale is permissible subject to the following conditions

o a prior contractual borrowing arrangement;o allowed in only specified liquid shares (currently 31 shares);o can be made only on an up-tick;o the offer has to be identified as a short sale at the time of punching the offer in the trading

system; and

o Net outstanding short position shall be tendered by delivery.Under Companies Ordinance 1984

Following persons are not allowed to short sale in their companys stockso Directoro Chief Executiveo Managing Agento Chief Accountanto Company Secretaryo Auditor; ando A beneficial owner with more than 10% holding of the listed equity securities [u/s. 223]

Trading by Directors, officers & Principal shareholders [u/s. 224]o If makes any gain by the purchase and sale, or the sale and purchase, of any such security

within a period of less than six months, such person shall make a report and tender

(surrender) the amount of such gain to

The company; and Notice to registrar and commission

Failure of company to recover gain4o If company fails to recover gain within

A period of six months after its accrual; or Sixty days of a demand thereof, whichever is later

o Such gain shall vest in the commission; ando Commission may recover the same as an arrear of land if not deposited in the prescribed

account.

4Gain: The gain which is required to be tendered to the company by such person shall be an amount bearing to the total

amount of the gain made, as the case may be, by the firm or private company the same proportion as his relative interest bears

to the total interest in such firm or private company.


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Prohibition on dealing, communicating or counseling by insiders

No person who is or has been, at any time during the preceding six months associated with a

company shall:

Either on his own behalf or on behalf of any other person, deal in securities of a companylisted on a stock exchange on the basis of any unpublished price sensitive information; or

Communicate any unpublished price sensitive information to any person, with or without hisrequest for such information, except as required in the ordinary course of business or under

any law; or Counsel or procure any other person to deal in securities of any company on the basis of

unpublished price sensitive information.

10 clsp investments and insider trading

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