Insider Trading Compliance for Indian Listed Companies

What is insider trading?

Insider trading refers to the buying or selling of a company’s securities by someone who has access to Unpublished Price Sensitive Information (UPSI).

UPSI is any information that is not yet available to the public but could significantly impact the stock price once disclosed.

Such trading undermines market fairness by giving individuals with privileged access an unfair advantage. It also violates the fundamental principle that all investors should have equal access to material information.

In India, insider trading is strictly prohibited under the SEBI (Prohibition of Insider Trading) Regulations, 2015. These rules apply not only to employees but also to consultants, advisors, legal firms, auditors, and even close relatives of insiders.

A high-profile example is the case involving Infosys CEO Salil Parekh, who was held accountable by SEBI for failing to prevent insider trading due to weaknesses in the company’s internal controls. Parekh settled the case by paying a ₹25 lakh penalty, highlighting the responsibility of senior leadership to enforce effective compliance measures.

More recently, in April 2025, Nestlé India disclosed that SEBI had issued a warning letter to its compliance officer regarding a breach of insider trading regulations by a designated person within the company.

What is Unpublished Price Sensitive Information (UPSI)

Unpublished Price Sensitive Information (UPSI) refers to any information related to a company or its securities that:

• Is not yet publicly available, and
• Would likely have a significant impact on the company’s share price if made public

As per SEBI, examples of UPSI include:

• Financial results (quarterly or annual)
• Dividend declarations (interim or final)
• Issue or buyback of securities
• Mergers, acquisitions, or takeovers
• Major expansion plans or new projects
• Significant business or management changes
• Disposal of a substantial part of the business

Who is an insider?

Under the SEBI (Prohibition of Insider Trading) Regulations, 2015, insiders are classified into two broad categories:

Connected persons

These are individuals who are or were associated with the company in any capacity and are reasonably expected to have access to UPSI. This includes:

• Directors and key managerial personnel (KMPs)
• Employees
• Auditors, legal advisors, consultants
• Bankers, analysts, law firms
• Immediate relatives (as defined under the regulations)

Deemed insiders

Anyone who receives UPSI, even temporarily, becomes an insider. For example:

• A vendor or external contractor working on a project
• A friend or family member who unintentionally overhears confidential information

SEBI (Prohibition of Insider Trading) PIT Regulations, 2015

The PIT regulations apply to all Indian companies whose securities are listed or are proposed to be listed on stock exchanges. Unlisted private companies are outside the purview of these rules, unless they share UPSI related to a listed entity.

1. Code of conduct

Every listed company is required to establish and enforce a formal code of conduct that governs trading in company securities. This code applies to:

• Designated persons and their immediate relatives. Designated persons include those based on functional roles and those up to two levels below the CEO, irrespective of title.
• Employees with access to UPSI
• Support staff, promoters, and senior management
• External advisors such as consultants, auditors, and law firms

The code of conduct must also identify a senior-level compliance officer who reports directly to the managing director or CEO. The code should detail the procedures for pre-clearance of trades above certain thresholds, prohibit contra trades, and define disciplinary actions in case of violations.

2. Trading window controls

To prevent trading during sensitive periods, companies must implement a “trading window” mechanism.

The trading window must close:

• Before quarterly or annual financial results
• Before M&A, buybacks, or strategic partnerships
• When dividends or capital restructuring are under consideration

The window must remain shut until 48 hours after public disclosure of UPSI.

3. Structured Digital Database (SDD)

One of the most critical compliance tools under SEBI’s insider trading regulations is SDD. This system is designed to track and record every instance where UPSI is shared.

The database must capture key details such as:

• The names and PANs of both the sender and recipient
• The nature of the information shared
• The date and time of access
• An audit trail to monitor how the information is used

SEBI mandates that this database be maintained internally and that all records be preserved for at least eight years after the completion of the relevant transaction.

Insiders are strictly prohibited from communicating UPSI to anyone, except for a legitimate purpose, the performance of duties, or legal obligations. Even in such cases, the sharing must be logged in the structured digital database to ensure traceability and compliance.

4. Mandatory disclosures 

When promoters, directors, or key managerial personnel are appointed, they must disclose their holdings within seven days. 

On a continual basis, if trades by such persons exceed ₹10 lakh in value over a calendar quarter (either in one or multiple transactions), they must make a disclosure within two trading days.

The company, in turn, must notify stock exchanges within two trading days of receiving this information.

5. Institutional framework and internal governance (Regulation 9A)

Every company must set up internal controls for:

• Identifying and tagging designated persons
• Limiting and monitoring UPSI access
• Maintaining a whistleblower policy
• Annual review of controls by the Audit Committee

There should also be written SOPs for investigating leaks or suspected leaks of UPSI.

‍6. Trading plans (Regulation 5)

To facilitate legitimate long-term trades by insiders who may be perpetually in possession of UPSI (such as CEOs or CFOs), SEBI allows for pre-approved trading plans. These plans must be submitted to the compliance officer in advance, disclosed publicly on the stock exchange, and can only begin after a six-month cooling-off period from the date of approval. 

Trades under such plans are permitted only outside blackout periods. If followed in spirit, trading plans offer a limited safe harbor from insider trading liability.

7. Informant mechanism and whistleblower rewards

SEBI’s regulations also provide for an informant mechanism that allows individuals to anonymously report insider trading violations. 

If the information is original, credible, and less than three years old, and it leads to successful enforcement action, the informant can receive a reward of up to ₹10 crore. This provision is intended to encourage insiders to come forward.

While the SEBI (Prohibition of Insider Trading) Regulations, 2015 form the backbone of insider trading compliance for listed companies, they don’t operate in isolation. 

Two other SEBI regulations (the Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015 and the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003) play important supporting roles

Listing Obligations and Disclosure Requirements (LODR) Regulations

The LODR Regulations govern how and when listed companies must disclose material information to the stock exchanges. This includes financial results, board decisions, mergers, dividends, and other price-sensitive developments. 

From an insider trading compliance standpoint, LODR is critical because any delay or inconsistency in public disclosure can create windows where UPSI exists, increasing the risk of its misuse.

In practice, LODR and PIT work together. 

LODR ensures that material information is made available to all investors at the same time, while PIT prohibits trading during the information gap. Ensuring strict compliance with LODR is thus a preventive tool against insider trading.

Prohibition of Fraud and Unfair Trade Practices (PFUTP) Regulations

While PIT Regulations focus specifically on insider trading and UPSI, PFUTP can be invoked in cases where insider trading is part of a larger fraudulent scheme, such as collusive trading, tip-offs to third parties, or misrepresentation of disclosures.

In enforcement proceedings, SEBI often charges violators under both PIT and PFUTP, especially when intent, concealment, or coordinated conduct is involved. PFUTP gives SEBI broader powers to investigate and penalize conduct that undermines market integrity, even if the specific definition of insider trading is not met.

Insider trading compliance is no longer just a legal requirement, it’s a corporate governance imperative. With SEBI increasing surveillance and enforcement, companies must not only have policies in place but ensure they’re deeply embedded in culture, processes, and daily operations.

FAQs

1. What penalties are imposed for insider trading violations in India?

SEBI can impose heavy penalties for insider trading. These include:

• Fines of up to ₹25 crore or 3x the profit made — whichever is higher
• Disgorgement of illegal gains to the Investor Protection Fund
• Market bans, offenders can be barred from trading or holding board positions
• Criminal prosecution in rare, severe cases
• Warning letters or settlements in less serious breaches

2. Who qualifies as an insider in a publicly listed company?

Anyone who has access to Unpublished Price Sensitive Information (UPSI) is an insider. This includes:

• Connected persons like employees, directors, auditors, lawyers, consultants, and even support staff
• Immediate relatives like spouse, financially dependent parents, siblings, children
• Anyone else who gains access, even temporarily. For example, a vendor involved in due diligence or a friend who overhears confidential information.