Insider trading

Insider trading is about buying or selling securities of a listed company by people who hold material, non-public information (MNPI) about that same company. The concept covers a wide set of actions, from a company director who does trades before a major merger is announced, to an employee who casually passes on a heads-up to a friend about upcoming quarterly losses. Really, at the centre of it, insider trading is a kind of violation of the idea that every investor in a securities market should have equal access to price-sensitive information and that nobody should be able to use an information edge that came from a role of trust or confidentiality.

In India, insider trading is mostly managed through the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (the "PIT Regulations 2015"). Those rules replaced the earlier 1992 regime, and they brought in a more modernised and wider regulatory setup. Under the SEBI Act, 1992, the Securities and Exchange Board of India (SEBI) was formed to act as law enforcement for capital markets in India.

Insider trading distorts market integrity by warping the price discovery mechanism that supports efficient capital markets. When insiders place trades while they know MNPI, they siphon off value from investors who are not in the loop, and this gradually chips away at public belief that markets operate fairly. Courts and regulators in different places, like India’s Supreme Court and various High Courts, have usually described it as a kind of securities fraud, and also as a breach of fiduciary duty.

In the Indian justice setup, insider trading matters move first through the SEBI adjudicatory process, then might go to the Securities Appellate Tribunal (SAT) and after that, to the Supreme Court of India under Article 136 of the Constitution. On top of that, criminal prosecutions for insider trading fall within the domain of special economic offences, so in practice, it is a concept that straddles both civil and regulatory channels and criminal enforcement frameworks.

Official definition of insider trading

Definition under legislation

The main legislative instrument that kind of governs insider trading in India is the SEBI (Prohibition of Insider Trading) Regulations, 2015, which were notified under sections 11 and 30 of the Securities and Exchange Board of India Act, 1992 (SEBI Act). In the PIT Regulations 2015, Regulation 2 lays out a set of definitions that, taken together, form the legal meaning of insider trading.

‘Insider’

Regulation 2(1)(g) defines “insider”. It says: “any person who is: (i) a connected person; or (ii) in possession of or having access to unpublished price sensitive information.” What is noticeable here is that it is deliberately broad because that second limb, that is, the “having access” and “possession” part, pushes insider status beyond people who are formally connected to the company. It brings in any person who, for whatever reason, ends up with UPSI.

‘Connected Person’

Regulation 2(1)(d) defines “connected person” as any person who is or was, during the six months before the act that allegedly violates the rules. associated with a company, directly or indirectly, in any capacity, including by being a director, officer, employee, or holding a position as a professional (for example, auditor, legal counsel, banker). It also includes someone who is a director or promoter of a company, or someone who is simply occupying a role that involves a professional or business relationship with the company, which may reasonably be expected to allow access to UPSI.

‘Unpublished Price Sensitive Information’ (UPSI)

Regulation 2(1)(n) lays out “unpublished price sensitive information” (UPSI) as any information about a company or its securities, whether directly or through some indirect route, that is not generally available and, once it becomes generally available, is likely to materially affect the trading price of those securities. The explanation then gives a non-exhaustive set of examples: financial results, dividends, change in the capital formation, mergers and acquisitions, demergers, disposals, expansion plans, shifts in key managerial personnel, and also material litigations or disputes.

‘Trading’ and ‘Trades’

Regulation 2(1)(l) talks about “trading”, meaning subscribing, buying, selling, dealing, or even agreeing to subscribe, buy, sell, or deal in any securities. It also covers pledging of securities. Then Regulation 4 states that no insider shall trade in securities that are listed, or proposed to be listed, on a stock exchange, while they are in possession of UPSI.

Definition under the SEBI Act, 1992

Section 12A of the Securities and Exchange Board of India Act, 1992, which was inserted via the Securities Laws (Amendment) Act, 2014,  says no person shall deal in securities based on MNPI, or communicate that kind of information, or even act for someone else based on the same. In a way, it upgrades what used to be more or less a subordinate regulatory kind of rule into a statutory mandate, and it also gives the legal backbone for SEBI’s investigatory powers.

Definition Under the Securities Contracts (Regulation) Act, 1956

Now, the SCRA, 1956, does not spell out insider trading in exact words. Still, its overall structure for monitoring securities markets and the stock exchanges provides the enabling setup where the PIT Regulations can sit and work. Also, Section 23E of the SCRA (amended in 2014) provides for criminal prosecution for violations of securities laws, insider trading included, with punishment that can go up to ten years in jail or a fine up to Rs. 25 crore, or both.

Definition as Interpreted in Case Law

SEBI v. Rajesh Agarwal & Others (SAT, 2018)

In this SAT decision, the Tribunal made it clear that the PIT Regulations, 2015, work on a “deemed possession” basis. So if someone receives UPSI, then they are presumed to have traded using it, unless they can show otherwise, and that rebuttal is not just casual. The Tribunal also said that it is not required to establish a straight, one-to-one causal link between possession and the actual trade, and once possession is shown, the burden shifts to the accused to knock the presumption out.

Hindustan Lever Ltd. v. SEBI (SAT, 1998)

This one is among the earliest landmark insider trading judgments in India. The SAT looked at whether HLL’s acquisition of Brooke Bond Lipton shares, done before the merger announcement, would amount to insider trading under the 1992 Regulations. Also, the Tribunal’s view on what counts as UPSI, and at what stage information becomes “generally available”, ended up being foundational in later cases, even when the facts changed.

Types of insider trading

Insider trading in India can be seen in a few different ways, kind of across multiple angles, for example, by type of insider, by the way the information actually moves, by what the transaction is doing, and also by which enforcement step gets triggered. 

By category of insider

Classical Insider Trading

This is about people who count as primary insiders, like directors, officers, promoters, auditors, lawyers, bankers, or other professionals, who end up directly holding UPSI because of their position, and then they go ahead and trade on that very basis. It’s the main model case that most enforcement actions zero in on.

Tipper-Tippee Trading

This covers when the initial insider, the “tipper”, passes UPSI to a secondary person, the “tippee”, and that tippee then trades using that information. Under the PIT Regulations 2015, both sides can get held responsible, the tipper for “communication” of UPSI (Regulation 3) and the tippee for trading off the received UPSI (Regulation 4). This line of liability can travel through more than one level of tipping.

Constructive Insider Trading

Here, the PIT Regulations 2015 go further than the old, clear-cut categories. They capture any person who has accessed UPSI, even if they don’t have a formal job or any contractual tie. Think family members, friends, or other associates of an insider, who get the information in informal ways, perhaps over a call or in passing. Regulation 2(1)(d) brings in “immediate relatives” through a deeming provision as connected persons, so it doesn’t matter much how distant it seems at first glance.

By mode of information transmission

Mode	Description	Regulatory implication
Direct communication	An insider personally conveys UPSI to another person.	So, both the person sharing and the person receiving can be held responsible under the Regs. 3 & 4.
Electronic/digital	UPSI is transferred via email, apps, or social media.	Digital forensics is increasingly deployed in SEBI investigations.
Overhead/inadvertent	Someone ends up with UPSI without actively asking for it.	Even so, it still counts as possession, so trading stays banned.
Structured trading plan	A pre-announced, rule-based trading programme.	This can create a safe harbour under Regulation 5, and it helps avoid accusations in a more shield-like manner.

By the nature of the violation

Trading-based violations

The most common category is when an insider buys or sells securities while in possession of UPSI. Both buy-side and sell-side trades are covered. Also, short selling based on UPSI (for example, before a negative earnings announcement ) is equally banned.  

Communication-based violations

Regulation 3 prohibits the communication of UPSI to any person. Even if the insider who’s doing the talking does not trade on their own, the simple act of tipping off still counts as a violation. This becomes extra relevant for corporate officials, investment bankers, and lawyers, because they might receive UPSI in their day-to-day professional roles.  

Procurement-based violations

Regulation 3 also prevents any person from procuring UPSI. That means persons who deliberately go after nonpublic information through improper channels, including corporate espionage, misuse of access privileges, or social engineering.

By the enforcement pathway

India runs a kind of dual enforcement scheme, not exactly one track. So, on the civil regulatory side, SEBI can start adjudication and bring penalties under sections 15G and 15H of the SEBI Act. In terms of the amount, penalties may go as high as Rs. 25 crore, or three times the profits that were made, whichever is higher. This was amended in 2014 under section 15G.

Then there is criminal enforcement, which works through section 24 of the SEBI Act along with section 23E of the SCRA. Here, criminal prosecution can lead to imprisonment up to 10 years and/or a fine up to Rs. 25 crore.

Finally, there is a settlement under the SEBI (Settlement Proceedings) Regulations, 2018. This allows a person to settle the enforcement process through paying a settlement sum, while not admitting guilt.

Appearance in official databases

SEBI Enforcement Actions and Orders Database

SEBI puts out all kinds of adjudicatory orders, plus settlement and consent orders, on its official site. If looking at insider trading enforcement actions, they mostly show up in a few categories:

• Orders by the Adjudicating Officer (AO) under sections 15G, 15H, and 15HA of the SEBI Act  
• Whole-Time Member (WTM) Orders, especially those issued after show-cause notices under sections 11, 11B, and 11(4) of the SEBI Act  
• Securities Appellate Tribunal (SAT) Orders, usually reachable through the SAT portal, which is dedicated to that purpose  
• Settlement Orders under the SEBI (Settlement Proceedings) Regulations, 2018  

For the actual enforcement database, the records can be filtered by order type (adjudicatory/settlement/consent), by year, and also by subject. The insider trading orders are tagged in the section named “Insider Trading / PIT Regulations”.

Methodologically, SEBI’s Integrated Surveillance Department (ISD) is doing the heavy lifting first. It uses algorithmic surveillance tools to pick up or “flag” strange trading behaviours around announcements that are price-sensitive. Once a case is flagged, it gets routed to the Enforcement Department to carry out the investigation, and then the investigation report flows into the show-cause notice stage. From there, it eventually ends up in the adjudicatory orders, which are the same ones that SEBI publishes on its website.

Securities Appellate Tribunal (SAT) Case Database

The Securities Appellate Tribunal keeps a searchable case database of its orders. Basically, all appeals against SEBI orders, in insider trading-type matters, get catalogued there. The SAT database generally lets you search by case numbers, party names and the particular regulation that was used. You can download the orders too, usually in PDF format.

National Stock Exchange (NSE) and BSE Surveillance Disclosures

The stock exchanges, i.e. NSE and BSE, run real-time surveillance setups. They’re also required under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations), to upload structured disclosures about insider trading on their websites.  

• Insider Trading Window Closure Notices: Listed companies have to disclose when the trading window is closing through the exchange disclosure portals.  
• Promoter/Insider Shareholding Disclosures: as per Regulation 7 of the PIT Regulations 2015, companies and insiders must submit trading disclosures to the exchanges within two trading days, when any trade crosses Rs. 10 lakh in value.  
• Structured Digital Database (SDD): SEBI’s 2019 circular (CIR/CFD/DCR1/2019) directed all listed entities to keep a Structured Digital Database that records the names of persons sharing UPSI, the date of sharing, and the rationale for sharing. These records can be audited by SEBI, but they’re not publicly open to everyone.

Ministry of Corporate Affairs (MCA) Databases

The MCA21 portal has filings made under the Companies Act, 2013, and in practice, these filings can matter for insider trading investigations. In particular, it covers director shareholding disclosures, like Form MBP-1 and DIR-8, plus disclosures that sit near related party transactions. On top of that, the MCA keeps the Serious Fraud Investigation Office (SFIO) database, where insider trading involving listed companies can sometimes overlap with broader corporate fraud probes.

Court Information Systems

For criminal prosecutions on insider trading, there is the eCourts system, which is managed by the Department of Justice. Still, how cases are categorised inside eCourts is not always neatly aligned with the term “insider trading” as a clear legal cause. Many times, matters get filed under the SEBI Act, or the SCRA, or even the Indian Penal Code, so pulling a consistent dataset becomes tricky and a bit complicated.

Research that engages with insider trading

Research from “Are Insiders’ Trades Informative?” by Josef Lakonishok & Inmoo Lee

This study digs into whether insider trades truly end up forecasting later stock results. The authors looked at insider trading behavior across companies that sit on NYSE, Nasdaq, and Amex, covering the years 1975–1995. They concluded that insider purchases are a lot more useful than insider sales. Put another way, when insiders buy shares in their own companies it often reads like a quiet vote of confidence about how things might go, performance-wise, soon. The paper also notes that insiders appear to do better than regular investors particularly in smaller firms, where relevant information is less freely visible to everyone. Overall, this research matters because it points to insiders having informational advantages that can bend market efficiency and, maybe even investor confidence, in practice.

Research from “Information Asymmetry and the Information Content of Insider Trades: Evidence from the Indian Stock Market” by Yogesh Chauhan, K. Kiran Kumar, and Chakrapani Chaturvedula

The researchers looked at insider trading disclosures from Indian listed companies, and they  tried to see if insider trades actually give any useful information to the market or not. What they found is that in India, insider trading quite often lines up with future stock price movements, so in a way it means insiders do have valuable private information. The paper also noticed that the informational value of these trades isn’t fixed, it changes with the ownership setup, especially in companies where promoters run the show, or where there are business groups with tighter control.

One key insight is that insider trading in an emerging context like India, might partly stand in for weaker analyst coverage and the lower level of transparency. Overall, the study feels important because it brings together financial  theory with what really happens in Indian markets, and it shows how information asymmetry ends up shaping capital markets there.

Research from “Corporate Governance and the Profitability of Insider Trading” by Lili Dai, Renhui Fu, Jun-Koo Kang & Inmoo Lee

Here the researchers focus on how corporate governance links up with the profits tied to insider trading. They report that stronger governance setups, like independent boards and more reliable monitoring systems, tend to shrink the profitability of insider sales. Still, governance didn’t really show a clear, statistically meaningful effect on profits coming from insider purchases. The authors argue that better governance pushes firms toward being more cautious around questionable or unethical selling because the potential legal fallout plus reputational damage is bigger. This paper is useful because it connects insider trading outcomes with wider concerns about corporate accountability, and protection for investors in a more general sense.

Overlaps and Gaps in Existing Research

A notable gap in scholarship on insider trading is the almost total absence of empirical socio-legal research on enforcement demographics, like who actually gets pulled in, and how it plays out across different insider categories. So, whether enforcement actions systematically target certain people, such as retail or mid-level employees, while larger institutional players or even promoter groups manage to stay under the radar, escapes our attention. There’s also limited work on the deterrent impact of insider trading penalties. When SEBI imposes penalties, do those consequences really deter later wrongdoing, or are they taken more like a routine price of doing business? On top of that, the link between insider trading and wider corporate governance breakdowns, like weak audit committees, and non-compliant related party transactions, for instance, has been explored far too little in the Indian setting.

International experiences

The United States of America

The US Securities and Exchange Commission (SEC) runs the most extensively litigated insider trading framework in the world, tied to Rule 10b-5 under the Securities Exchange Act of 1934. In the US framework, there is no statutory definition of insider trading. What exists has been pieced together over decades via judicial interpretation. This is seen in a few key doctrines like the classical theory (trading by corporate insiders using MNPI), the misappropriation theory (outsiders who grab MNPI and then trade, while breaching some duty to the source), and the tipper-tippee doctrine, which shows up in Dirks v. SEC (1983). Also, the Insider Trading Sanctions Act (1984) and the Insider Trading and Securities Fraud Enforcement Act (1988) added civil penalties that can reach up to three times the profit gained or loss avoided.

For India, one real lesson from the US is the emphasis on cooperation incentives. The way the DOJ offers reduced sentences for cooperation has helped break apart several high-profile tipper-tippee webs, especially in the hedge fund corner (for example, the Galleon Group prosecutions during 2009–2011). India’s current framework does not really provide the same sort of formal cooperation, even if SEBI’s settlement mechanism gives some administrative leeway.

United Kingdom

In the UK, insider dealing sits under the UK Market Abuse Regulation (UK MAR), kept in place from the EU’s MAR after Brexit, plus the Criminal Justice Act 1993. The Financial Conduct Authority (FCA) acts as the main regulator, and they’re usually the one driving enforcement. One thing that stands out in the British setup is the focus on market soundings, which is basically a formal route (guided by FCA materials) that lets investment banks test the temperature of institutional investor interest in a contemplated deal without automatically causing insider trading exposure, as long as the required safeguards and protocols are observed. India’s PIT Regulations, 2015, brought in something like this, via the “generally available information” standard, but there isn’t an equivalent, fully spelt-out market sounding protocol.

European Union

The EU has its own Market Abuse Regulation, and it’s designed to work as a harmonised approach across member states. A key element of MAR is the mandatory insider list. Firms must keep a record of everyone who has access to inside information, and then share it with the national competent authorities when they ask. In India, the Structured Digital Database (SDD) rule, introduced in 2019, feels quite similar in concept, even if the practical follow-through has been patchy and uneven at times.

Singapore

Singapore’s Securities and Futures Act (SFA), 2001 (as amended) holds an integrated framework for market misconduct, including insider trading (Part XII). The Monetary Authority of Singapore (MAS) runs a Market Surveillance Department, and it has real-time monitoring abilities, which are fairly comparable to what’s being developed by SEBI. What stands out is MAS’s outcome-led regulation mindset, plus proportionality in enforcement. In practice, penalties get scaled based on how serious the violation is, and also on the profile of the person or entity involved, which is the kind of model some Indian practitioners have supported, given India’s varied market participation landscape.

Lessons for India

Looking across jurisdictions, there are key takeaways for India’s insider trading framework.

1. Dedicated fast-track courts or tribunals for securities offences: Like the US, say the Southern District of New York’s history with securities prosecutions, and also Singapore. This would, in theory, cut down the current average case disposal time quite a lot.
2. Market sounding protocols: Having a formal legal safe harbour for pre-deal market soundings (the way the UK MAR does) could reduce litigation risk for investment bankers, and at the same time, create clearer regulatory expectations.  
3. Cooperation incentives: Formal whistleblower and cooperation programmes, beyond SEBI’s existing Informant Mechanism (2018), would help, particularly when it comes to spotting those complicated tipper-tippee networks.  
4. Fast-track adjudication: Dedicated securities offences courts, or boosting the SAT bench strength, could bring down the 5-10 year timelines that many cases currently seem to face.

Data challenges

Lack of Publicly Accessible Structured Digital Databases (SDDs)

While listed entities are required to maintain SDDs that record UPSI-sharing, these are internal documents, accessible only to SEBI during investigations. There is, in practice, no single centrally managed publicly accessible repository of SDD submissions. As a result, independent checking of how information moves around corporate events becomes hard for researchers, and also for civil society organisations. 

Inconsistent Categorisation in Court Data

Criminal insider trading prosecutions are not always tagged consistently in the eCourts database. Some cases get filed under the SEBI Act, others under the SCRA, or even under broad IPC provisions, and there isn’t any standardised case type code meant specifically for “insider trading” in the eCourts National Data Grid. Because of that, it is hard to compute a reliable count of criminal prosecutions, which is a basic data gap highlighted by several legal researchers.  

Delays in Publication of SEBI Enforcement Orders

SEBI does publish enforcement orders on its website, but there are often big gaps between the date of the order and the time it actually shows up online. Research has suggested that, in complicated matters, an order may take a few months before it appears on the SEBI portal. This kind of lag restricts near real-time monitoring, and it also weakens the transparency role that public disclosures are supposed to serve.

Limited Data on Settlement and Deterrence

SEBI publishes settlement orders, yet the full way the settlement amount is worked out, including SEBI’s own internal disgorgement-style calculations, is not actually shown. It is not possible to check, on your own, whether those settlement figures have a meaningful link to the profits made from the illegal trades, or whether SEBI enforcement is truly deterring people in practice.

Non-Standardisation of Insider Disclosures Across Exchanges

Both NSE and BSE require insider trading-related disclosures, but the presentation and even how easy it is to find things change between the two. For example, insider shareholding disclosures (under Regulation 7 of the PIT Regulations) show up as documents, not as machine-readable structured data. That setup basically blocks automated analysis of trading patterns, and you end up doing more manual digging than you should.

Investigation-to-Enforcement Conversion Rate

SEBI’s Annual Reports do mention the number of surveillance alerts generated by the Integrated Surveillance Department. However, they don’t clearly break out how many of those alerts are tied to potential insider trading versus other types of market misconduct. Also, the conversion rate from alert to formal investigation, and then on to an enforcement action, is not publicly provided. Because of that, it becomes difficult to judge how efficient the whole surveillance-to-enforcement pipeline really is.

Way ahead

Standardisation of Insider Trading Data

Standardisation of Insider Trading Data has been in the spotlight for a while, and regulators, researchers, and practitioners keep asking for more consistency.

• Machine-readable disclosures: NSE and BSE should require structured, machine-readable formats (JSON / XML) for all insider trading-related disclosures, instead of the current PDF-style filings. The whole point would be to allow near real-time monitoring and, yes, more academic research without extra manual cleanup.
• Centralised SDD repository: SEBI could think about setting up one central repository for SDD data, something like a central store of anonymised aggregates, with personally identifiable information removed. That way, people can actually study UPSI transmission patterns across industries and also across different transaction types, rather than dealing with fragmented files.
• Unified case-type coding: The eCourts National Data Grid should add a separate case type code for criminal prosecutions under the SEBI Act and SCRA. This would, for the first time, allow something close to an accurate national count, or census, of insider trading criminal cases.

Collection of Data

• Integration of SEBI and eCourts data: There should be a data-sharing protocol between SEBI and the National Informatics Centre, the same body that manages the eCourts system. This could let users cross-reference civil enforcement orders with criminal proceedings that trace back to the same underlying conduct.
• Whistleblower data publication: SEBI’s Informant Mechanism, set up in 2018, should publish aggregate numbers from informant-led investigations. like how many informants, how many investigations got triggered, and what enforcement outcomes happened. It’s meant to help everyone judge whether the programme is working in practice.
• Annual Insider Trading Enforcement Report: SEBI should bring out a dedicated annual insider trading enforcement report, separate from the general Annual Report. It should include disaggregated information on cases investigated, the time to disposal, penalties imposed, and criminal referrals that were made.

Improving Analysis

• Independent review of SEBI surveillance algorithms: SEBI should commission periodic independent reviews of the algorithmic surveillance tools that are used for spotting insider trading. Those reviews ideally have published reports on their usefulness, false positive rates and coverage gaps, not just internal memos.  
• Academic access to anonymised enforcement data: SEBI and SAT could set up an academic data access programme, somewhat like the US PACER fee-waiver programme for researchers, that gives researchers structured access to anonymised enforcement data for independent work, including more careful testing.  
• Stronger international cooperation: Better bilateral data-sharing arrangements under the IOSCO Multilateral Memorandum of Understanding (MMoU) framework, which India has signed, would help to improve investigative reach for cross-border insider trading. Especially when it’s linked to foreign institutional investor trading inside India.

Views of Senior Judiciary and Practitioners

Former SAT Presiding Officer Justice Tarun Agarwala has publicly pointed to the need for SEBI to develop more sophisticated forensic tools that can trace indirect clues of insider trading, particularly in matters involving tangled corporate group structures. Meanwhile, senior advocates practising before SEBI have repeatedly asked for more transparent benchmarking of penalty amounts, to ensure consistency across enforcement actions and not a kind of uneven outcome.

Also known as

• Insider Dealing
• Informed Trading
• Price Sensitive Trading
• Front-Running
• Market Abuse

References

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Page created 2026-08-21  ·  Last updated 2026-08-27