SEBI (Prohibition of Insider Trading) Regulations, 2015: A Comprehensive Study

Abstract

Insider trading is a major challenge that threatens the fairness, transparency, and trust in financial markets. It involves trading based on confidential, price-sensitive information that is not available to the public. This gives certain individuals an unfair advantage over others, leading to unequal opportunities in the stock market. In India, the Securities and Exchange Board of India (SEBI) took a significant step to address this issue by introducing the SEBI (Prohibition of Insider Trading) Regulations in 2015. This research article aims to provide a detailed yet easy-to-understand overview of these regulations.

The article begins by defining what insider trading is, exploring its harmful effects, and the need for strict regulation. It traces the history of insider trading laws in India, highlighting the evolution from the earlier 1992 and 2002 regulations to the comprehensive 2015 framework. The article also discusses the role of the Justice N.K. Sodhi Committee in drafting a more effective and globally aligned regulatory structure.

Key features of the 2015 regulations such as definitions, disclosure norms, trading plans, compliance mechanisms, code of conduct, whistleblower policies, and penalties are explained in detail. Landmark case studies provide real-world examples of how these laws have been enforced. The article further analyses the impact of technological advancements, challenges in enforcement, and global comparisons with other countries’ insider trading laws.

In conclusion, the SEBI (PIT) Regulations, 2015 represent a vital step toward protecting investor interests and improving the credibility of Indian financial markets. Continuous improvements, awareness campaigns, and strict enforcement are essential for maintaining their effectiveness in a constantly evolving financial landscape.

1. Introduction

Financial markets function on the principles of trust, transparency, and equal access to information. Every investor, big or small, should have the same opportunity to make informed decisions. However, this balance is disturbed when some individuals use confidential company information—before it is disclosed to the public—to gain personal profits. This is known as insider trading.

Insider trading is considered unethical and illegal in most countries, including India. It gives certain individuals an unfair advantage and can result in significant losses to ordinary investors who are unaware of the inside developments. It also erodes the integrity of financial markets and reduces investor confidence.

India, like many other countries, has faced the issue of insider trading for decades. The first insider trading regulations were introduced by SEBI in 1992. Over time, as markets became more complex and global, SEBI realized the need for stronger and more detailed rules. This led to the creation of the SEBI (Prohibition of Insider Trading) Regulations, 2015, which replaced the earlier versions.

The 2015 regulations are comprehensive, covering definitions, trading restrictions, disclosure requirements, and penalties. They also introduced new concepts like trading plans and whistleblower mechanisms to encourage ethical behaviour and enhance monitoring. Over the years, SEBI has made several amendments to these regulations to keep them updated with changing market dynamics and technological developments.

This article takes a detailed look at the SEBI (PIT) Regulations, 2015—explaining them in simple language for students, professionals, and investors. It begins by explaining insider trading, discusses the history and background, explores the major provisions, includes real-life cases, compares Indian laws with global practices, and concludes with an analysis of its impact and future challenges.

2. Understanding Insider Trading

Insider trading refers to the practice of buying or selling securities by individuals who have access to non-public, price-sensitive information about a company. This information gives them an unfair advantage, allowing them to profit or avoid losses based on something others in the market do not know.

Unpublished Price Sensitive Information (UPSI)

UPSI is any information that:

• Is not yet available to the general public, and
• Can significantly affect the price of a company’s shares once made public.

Examples of UPSI:

• Financial results before they are declared.
• Mergers or acquisitions.
• Major contracts or deals.
• Resignation or appointment of key personnel.
• Legal disputes affecting the company.

Who is an Insider?

According to SEBI, an insider is:

• Any person connected with a company who has access to UPSI.
• Anyone in possession of UPSI, regardless of how they got it.

Types of insiders:

1. Primary insiders: Employees, directors, auditors, legal advisors.

2. Secondary insiders: Friends, family members, business associates who receive UPSI.

Why is Insider Trading a Problem?

• Unfairness: It gives insiders an edge over ordinary investors.
• Loss of Trust: Retail investors lose faith in the fairness of the market.
• Manipulation: It leads to artificial price movements.
• Damage to Companies: The reputation and stock prices of companies suffer.

By understanding insider trading and its harmful effects, we can appreciate why strong regulations are necessary to ensure market integrity.

3. History and Evolution of Insider Trading Laws in India

India’s journey in regulating insider trading began in the early 1990s when liberalization opened the economy to global investment. However, the early laws were basic and lacked enforcement power.

1992 Regulations

• SEBI introduced the first insider trading regulations in 1992.
• These regulations defined insider trading and restricted insiders from using UPSI for personal gain.
• However, enforcement was weak due to vague definitions and limited investigation tools.

2002 Revisions

• Based on feedback and legal cases, SEBI revised the regulations in 2002.
• The definition of “insider” and “connected persons” was expanded.
• However, challenges remained in detecting and proving insider trading.

The Sodhi Committee (2013)

• SEBI formed a committee under Justice N.K. Sodhi in 2013.
• It reviewed global practices and proposed a fresh regulatory framework.
• Recommendations included:
  • Clearer definitions.
  • Mandatory disclosures.
  • Trading plans for legitimate trading by insiders.
  • Whistleblower protection.

The 2015 Regulations

• SEBI notified the SEBI (Prohibition of Insider Trading) Regulations, 2015 on January 15, 2015.
• They came into force on May 15, 2015.
• These regulations incorporated the Sodhi Committee’s suggestions and aligned India’s laws with global standards.

This marked a major shift in India’s approach—moving from mere restrictions to a more structured and proactive regulatory framework.

4. Key Features of SEBI (PIT) Regulations, 2015

The 2015 regulations are detailed and practical, ensuring fair practices and accountability. Here are the core features:

A. Definition of Insider

An “insider” includes:

• Connected persons (employees, directors, professionals).
• Any person in possession of UPSI, irrespective of their connection with the company.

This broadens the scope and makes it harder for insiders to escape responsibility.

B. Unpublished Price Sensitive Information (UPSI)

Defined as any information not yet public that is likely to materially affect the stock price. Examples:

• Financial results
• Dividends
• M&A deals
• Internal restructuring

C. Communication of UPSI

• Prohibited unless for legitimate purposes.
• Disclosures must be made in a structured digital database (SDD).
• Requires confidentiality agreements.

D. Trading When in Possession of UPSI

• Insiders cannot trade if they possess UPSI, regardless of intent.
• Only exception: trades under a pre-approved “trading plan.”

E. Trading Plan

• A written plan submitted in advance.
• Must mention the number of shares and timing.
• Once submitted, no changes allowed.
• Offers legal protection if followed honestly.

F. Code of Conduct

All listed companies, intermediaries, and fiduciaries must:

• Frame a code of conduct.
• Designate a compliance officer.
• Establish rules for pre-clearance and disclosure of trades.

G. Disclosures

• Initial and continual disclosures by directors, promoters, and KMPs.
• Any trade above ₹10 lakhs in one quarter must be disclosed.
• Helps SEBI and stock exchanges monitor unusual activity.

H. Structured Digital Database (SDD)

• Companies must maintain a digital record of:
  • Names of persons who received UPSI.
  • Purpose and date of sharing.
• Ensures traceability and accountability.

I. Informant Mechanism

• Introduced in 2019.
• Allows whistleblowers to report insider trading.
• Reward up to ₹1 crore.
• Ensures confidentiality.

5. Enforcement and Penalties

SEBI is empowered to take action against those who violate the insider trading regulations. Enforcement is a key component of ensuring the effectiveness of any regulation, and SEBI uses various methods to investigate and penalize wrongdoers.

Powers of SEBI

Under the SEBI Act, 1992, SEBI can:

• Conduct investigations and inspections.
• Demand information and records.
• Impose penalties.
• Ban individuals or companies from accessing the markets.
• Initiate criminal proceedings if necessary.

Types of Penalties

1. Monetary Penalties: SEBI can impose a penalty of up to ₹25 crores or three times the number of profits made—whichever is higher.

2. Market Bans: Individuals involved in insider trading may be banned from trading in the stock market or acting as company directors.

3. Prosecution: Serious cases may lead to imprisonment under Section 24 of the SEBI Act.

4. Reputation Damage: Names of violators are published, affecting their professional standing.

Enforcement Challenges

• Insider trading is often done secretly, making it hard to detect.
• Need for strong digital tracking and data analysis.
• Proof of possession and usage of UPSI must be established.
• Delay in legal proceedings can reduce the impact of punishment.

Despite these challenges, SEBI has taken strict actions in many cases, which we’ll explore next.

6. Important Case Studies

Case 1: HDFC Bank – Employee Insider Trading (2017)

• An HDFC Bank employee accessed confidential financial results before public release.
• He shared the data with a friend who traded based on this UPSI.
• SEBI used call records and digital evidence to track the leak.
• Penalties: Both were fined and barred from trading for several years.

Case 2: Axis Bank Case (2018)

• A senior Axis Bank official was found sharing UPSI about financial results with friends.
• Trades were carried out through multiple accounts to hide identity.
• SEBI traced the trading pattern and found a clear link to UPSI.
• Penalty: ₹55 lakh imposed and a ban on trading activities.

Case 3: Reliance Petroleum Ltd. (2007)

• Involved manipulative trades before a major deal.
• SEBI investigated and found insider knowledge was misused to benefit from price movements.
• SEBI imposed fines and demanded disgorgement of profits.

Case 4: Deep Industries Ltd. (2020)

• Promoters and connected persons traded on inside information regarding a merger.
• UPSI was leaked before any formal announcement.
• SEBI issued restraining orders and imposed penalties.

These case studies show how insider trading can take many forms—from direct leaks to indirect involvement—and how SEBI uses technology, data, and surveillance to uncover the truth.

7. Amendments and Updates

The financial world is constantly changing. To keep up, SEBI has made several amendments to the 2015 Regulations to improve clarity and efficiency.

Key Amendments

2018:

• Enhanced the definition of UPSI.
• Strengthened disclosure requirements.

2019: Informant Mechanism

• Introduced a reward system for whistleblowers.
• Informants can receive up to ₹1 crore for credible information.
• Ensures confidentiality and provides legal protection.

2020: Structured Digital Database

• All listed companies must maintain a structured digital database (SDD).
• Record sharing of UPSI and person details.
• Helps trace leaks and ensures audit trails.

2021: Relaxation During COVID-19

• Allowed delayed disclosures and relaxed compliance timelines.
• Recognized the challenges companies faced during the pandemic.

2023–2024 Updates:

• Further strengthening of the informant mechanism.
• Introduction of AI-powered surveillance by SEBI.
• Emphasis on real-time monitoring and alerts.

These changes show SEBI’s commitment to making insider trading laws practical, strict, and technology driven.

8. Global Comparison

Insider trading is a global concern. Different countries have developed their own legal frameworks. Let’s compare India’s regulations with some major global models.

United States

• Governed by the Securities Exchange Act of 1934.
• Securities and Exchange Commission (SEC) is the regulatory body.
• Uses the “misappropriation theory” to penalize misuse of confidential information.
• Severe penalties: Fines of millions of dollars, jail time up to 20 years.

United Kingdom

• Regulated under Financial Conduct Authority (FCA).
• Has a strict Market Abuse Regulation (MAR).
• Insider trading and market manipulation are criminal offences.
• Enforcement includes heavy fines and imprisonment.

Singapore

• Regulated by the Monetary Authority of Singapore (MAS).
• Clear definitions and fast investigations.
• Known for speed and efficiency in enforcement.

India

• SEBI’s 2015 Regulations align well with global practices.
• The informant mechanism is a recent global best practice.
• Enforcement is improving but still slower than some developed markets.

Comparative Insights

9. Impact of SEBI (PIT) Regulations, 2015

Since the introduction of the SEBI (Prohibition of Insider Trading) Regulations, 2015, the Indian financial ecosystem has seen several positive changes. These regulations have not only created a robust legal framework but also enhanced awareness and responsibility among companies and investors.

A. Improved Corporate Governance

• Companies are now more cautious while handling UPSI.
• Designated compliance officers ensure internal control and pre-clearance of trades.
• Directors, employees, and consultants are better trained in legal compliance.

B. Greater Transparency

• Mandatory disclosures of trades by promoters and key managerial persons help track unusual movements.
• Real-time alerts and media announcements about financial results and major decisions reduce information gaps.

C. Effective Deterrence

• The fear of heavy penalties, trading bans, and reputational loss acts as a deterrent.
• Cases like HDFC and Axis Bank show SEBI’s commitment to strict enforcement.

D. Technological Integration

• The use of structured digital databases (SDD) ensures that all UPSI sharing is documented.
• Surveillance systems are becoming more automated and data driven.

E. Rise in Whistleblower Culture

• The 2019 Informant Mechanism has encouraged internal reporting.
• Employees and stakeholders feel safer to speak up without fear of retaliation.

F. International Alignment

• SEBI’s practices are now comparable to international standards, making India more investor-friendly to global institutions.

Despite these improvements, challenges still exist in terms of enforcement and ethical compliance, which we’ll now explore.

10. Challenges in Implementation

While the 2015 regulations are a big leap forward, real-world implementation still faces certain hurdles.

A. Proof of Possession of UPSI

• SEBI must prove that the person was in possession of UPSI and used it to trade.
• In many cases, insiders may pass the information verbally or through informal channels, leaving no evidence.

B. Difficulty in Detecting Leaks

• UPSI can be shared in coded conversations, via family members or associates.
• Tracking such informal leaks requires sophisticated tools and sometimes fails.

C. Legal Delays

• Even after detection, insider trading cases may drag on for years in tribunals or courts.
• The delay reduces the impact of penalties and weakens deterrence.

D. Low Reporting by Whistleblowers

• Many employees still fear backlash or job loss if they report unethical practices.
• Despite protections, whistleblower culture is not strong in all companies.

E. Compliance Burden

• Smaller companies often find it difficult to maintain a structured digital database or full-time compliance officers.
• There’s a need for capacity building in mid-cap and small-cap companies.

F. Insider Trading vía Social Media

• In the digital age, leaks through WhatsApp, Telegram, or even memes can circulate UPSI before official announcements.
• Tracking such activities is complex and needs AI-backed tools.

To overcome these challenges, continuous innovation in surveillance, stronger digital evidence protocols, and ethical education across companies are essential.

11. Suggestions for Improvement

To further strengthen the effectiveness of insider trading regulations in India, the following suggestions can be considered:

A. Strengthening AI-Based Surveillance

• SEBI should invest more in real-time surveillance systems powered by AI and
• can ensure quicker resolution of insider trading cases.
• This will enhance public confidence and serve as an effective deterrent.

B. Awareness Campaigns

• SEBI should conduct regular workshops and online training sessions for corporates, compliance officers, and students to promote awareness.

C. Enhanced Protection for Whistleblowers

• More incentives, stronger anonymity guarantees, and legal assistance will encourage more people to report insider trading.

D. Mandatory Annual UPSI Audits

• Companies should conduct internal audits of all UPSI access and sharing every year and submit reports to SEBI.

E. Cross-Border Cooperation

• Insider trading often involves cross-border entities. SEBI should collaborate with foreign regulators to track and penalize global violations involving Indian companies.

These steps will help in building a more transparent and equitable capital market ecosystem in India.

12. Ethical Dimensions of Insider Trading

Insider trading is not just a legal issue—it’s a deeply ethical one. It involves questions of fairness, integrity, and moral responsibility. Understanding the ethical foundations helps build a culture of compliance beyond mere fear of punishment.

A. Fairness and Market Integrity

Insider trading violates the fundamental principle of a level playing field. In a fair market:

• Every investor should have equal access to material information.
• No one should gain an unfair advantage through secret knowledge.

By trading on UPSI, insiders undermine this fairness and distort the functioning of capital markets. This erodes investor trust, especially among retail participants.

B. Fiduciary Responsibility

Corporate insiders—CEOs, directors, and auditors—are entrusted with sensitive information. They have a fiduciary duty to act in the best interest of the company and its shareholders. Misusing that trust for personal gain is a serious ethical violation.

It’s equivalent to a betrayal, especially when employees or clients suffer losses while insiders profit unfairly.

C. Impact on Minority Shareholders

• Insider trading disproportionately affects small investors who lack access to UPSI.
• It leads to information asymmetry, where major players win, and the public loses.

This widens the wealth gap in financial markets and creates a perception that the “game is rigged.”

D. Ethical Theories and Insider Trading

Let’s relate insider trading to common ethical theories:

• Utilitarianism: Insider trading benefits a few but harms the many. The overall outcome leads to less happiness (loss of trust, fairness).
• Deontology: Breaking rules for personal gain are inherently wrong, regardless of the outcome. Thus, insider trading is unethical even if no one seems directly harmed.
• Virtue Ethics: A morally good person acts with honesty, fairness, and integrity. Insider trading violates all these virtues.

Thus, beyond regulations, moral awareness and ethical leadership are essential in fostering clean financial ecosystems.

13. The Role of Technology in Insider Trading Detection

Technology has revolutionized how regulators like SEBI monitor and detect insider trading. Let’s explore the tools and innovations used to prevent, track, and prove violations.

A. Surveillance Systems

SEBI’s Integrated Market Surveillance System (IMSS) and Data Warehousing and Business Intelligence System (DWBIS) help:

• Track unusual trading patterns across markets.
• Monitor price-volume fluctuations before major corporate events.
• Identify links between insiders and beneficiaries using network analysis.

Example: If a company’s earnings report leaks early, and a few accounts suddenly buy large volumes of stock before a price jump, SEBI’s systems will flag this activity.

B. Structured Digital Database (SDD)

Mandatory for all listed companies, the SDD:

• Logs every instance of UPSI sharing.
• Records name, designation, and contact of the person with whom the information was shared.
• Can be audited by SEBI at any time.

This makes it harder for insiders to deny their access to UPSI during investigations.

C. Artificial Intelligence and Machine Learning

SEBI is increasingly adopting AI tools for:

• Pattern recognition: Spotting hidden trading links.
• Behavioural analytics: Profiling suspicious traders based on past actions.
• Automated alerts: Triggered when trading patterns match typical insider behaviour.

Machine learning improves with time, helping SEBI catch new, evolving tactics used by sophisticated offenders.

D. Data Integration

SEBI collaborates with:

• Stock exchanges like NSE and BSE.
• Depositories like NSDL and CDSL.
• Financial Intelligence Unit (FIU).
• Telecom companies (for call/data records).

This integrated data helps create a timeline of communication and trade, strengthening the evidence.

E. Challenges in Digital Surveillance

• Over-reliance on tech may cause false positives.
• Sophisticated insiders use VPNs, burner phones, or untraceable apps like Signal.
• Encrypted communication makes it hard to trace the origin of leaks.

To overcome these, SEBI combines human expertise with tech tools, ensuring stronger enforcement.

14. Role of Compliance Officers and Internal Governance

An essential part of the 2015 regulations is the internal governance framework within listed companies. Let’s examine the role of compliance officers, codes of conduct, and company-level accountability.

A. Compliance Officer’s Duties

Every listed company must appoint a Compliance Officer, typically a senior employee (like a CS or legal head) responsible for:

• Monitoring trades by insiders.
• Ensuring UPSI is handled as per regulations.
• Pre-clearance of trades by Designated Persons.
• Maintaining the SDD and audit trails.

They act as the first line of defence in preventing insider trading.

B. Codes of Conduct

Companies must have:

1. Code of Practices and Procedures for Fair Disclosure of UPSI.

2. Code of Conduct for Designated Persons (DPS).

These documents:

• Define how and when information can be shared.
• Specify trading windows and blackout periods.
• Lay out consequences of violations.

Training and Awareness

• Regular training sessions for employees help spreads awareness.
• Many companies also require an annual self-declaration from insiders that they have not traded on UPSI.

Challenges in Implementation

• In many companies, compliance is still viewed as a checkbox activity.
• Pressure from top management can dilute the officer’s independence.
• Smaller firms may not have dedicated resources or legal departments.

Thus, SEBI encourages a top-down ethical culture, where senior leadership sets the tone for integrity.

Future Trends and Evolving Challenges

Looking ahead, the nature of insider trading will continue to evolve. Here are a few emerging trends SEBI must prepare for:

Social Media and Meme Leaks

UPSI leaks may happen via platforms like Reddit, Telegram, or Instagram, sometimes disguised as jokes or memes. Regulators need new frameworks to monitor digital subtleties.

Use of Bots and Algorithmic Trading

Insiders may use automated bots to execute trades faster than surveillance systems can detect. This calls for real-time intervention tools.

Cross-Border Insider Networks

Insiders might collaborate with foreign traders to escape Indian jurisdiction. SEBI must deepen international cooperation with SEC (USA), FCA (UK), etc.

Rise of ESG Whistleblowers

Environmental and governance-based leaks could become the next area of insider misuse. ESG-sensitive data like mergers or climate-related disclosures must be treated as UPSI.

In short, regulation must evolve alongside innovation to stay ahead of wrongdoers.

Conclusion

The SEBI (Prohibition of Insider Trading) Regulations, 2015 signify a monumental leap in India’s journey toward a transparent, equitable, and globally competitive financial market. They represent not just a legal transformation, but also a cultural shift—one that emphasizes integrity over advantage, trust over temptation, and fairness over privilege.

At the core of these regulations lies a fundamental principle: no investor should be disadvantaged due to unequal access to material information. Whether it’s a retail investor saving for their child’s education or a global investment firm evaluating stock portfolios, the playing field must be level. Insider trading violates this ethos by allowing a few privileged individuals to profit at the expense of the unsuspecting many. The 2015 regulations were a bold and timely attempt to dismantle this injustice and reassert the core values of market integrity, transparency, and investor protection.

By clearly defining what constitutes UPSI, expanding the definition of insiders, introducing structured digital databases (SDDs), and enhancing disclosure obligations, the regulations provided a strong, enforceable framework. The reforms not only plugged the loopholes of earlier versions but also aligned Indian practices with global best standards—placing the nation on par with leading regulatory ecosystems like the U.S. SEC and the UK’s FCA.

Moreover, these regulations were not designed to be static. They have evolved through key amendments in 2018 and 2019, responding to challenges like digital communication, algorithmic trading, and whistleblower protection. SEBI’s technological adoption—like AI-powered surveillance systems and integrated databases—signals its readiness for the future, where digital trades and encrypted chats can hide complex patterns of financial misconduct.

 

However, regulations alone are not enough. As this research shows, ethical awareness, strong internal governance, and cultural change are just as essential. Insider trading is not just illegal—it is unethical. It undermines the very trust that financial markets are built upon. When insiders betray fiduciary responsibilities, they don’t just commit a crime; they shatter the confidence of every investor who believes in fair markets.

This is why the role of compliance officers, board members, and corporate leaders becomes so crucial. Ethical leadership—when backed by regular training, effective codes of conduct, and active whistleblower mechanisms—can prevent violations before they happen. Creating an environment where information is treated with sensitivity, where disclosures are timely, and where suspicion is reported fearlessly, is as important as prosecuting wrongdoers.

Despite the advancements, challenges persist. Proving possession and misuse of UPSI remains difficult, especially when leaks occur through informal, encrypted, or coded means. Legal delays and resource constraints slow down justice. Smaller companies struggle with technical and compliance costs. The rise of meme leaks, cross-border trading rings, and algorithmic manipulation adds fresh complexities.

Therefore, the way forward lies in a multidimensional approach:

• Continuous regulatory evolution to match technological advancement.
• Greater international cooperation to track cross-border misconduct.
• Strengthened judicial mechanisms for faster resolution of cases.
• Enhanced protection and incentives for whistleblowers.
• A nationwide effort to in still ethical literacy in financial practices.

In conclusion, the SEBI (Prohibition of Insider Trading) Regulations, 2015 are more than just rules—they are a declaration of faith in fairness. They send a powerful message: that markets must reward intelligence, not inside access; that success must be earned, not stolen; and that in the temple of capitalism, integrity is the highest currency.

As India continues its rise as a global economic powerhouse, it must ensure that its financial markets remain safe, honest, and just. With constant vigilance, ethical foresight, and empowered institutions like SEBI, this goal is not just achievable—it is inevitable.