SEBI (Prohibition of Insider Trading) Regulations, 2015

The SEBI (Prohibition of Insider Trading) Regulations, 2015 (commonly abbreviated as SEBI PIT Regulations) were introduced to curb the misuse of unpublished price‑sensitive information (UPSI) and to promote fair and transparent securities markets in India.

These regulations apply to listed entities, their directors, officers, employees, and any other person who is in a position to obtain UPSI. The scope is deliberately broad so that even indirect channels of information flow, such as family members or consultants, are covered.

For the NISM exam, the Regulations are a high‑frequency topic because they test both conceptual understanding (definitions, prohibited acts) and practical knowledge (reporting timelines, penalty calculations). Questions often present a scenario and ask you to decide whether a trade is permissible or what penalty may be imposed.

• Remember: SEBI PIT is a civil and criminal regime – non‑compliance can lead to both monetary fines and imprisonment.
• The Regulations are periodically updated; the 2015 version remains the core reference for the current exam syllabus.

Insider – Any person who, by virtue of his/her position, has access to UPSI. This includes directors, officers, employees, and persons connected to them (family, consultants, etc.).

Unpublished Price‑Sensitive Information (UPSI) – Any information that is not yet public and, if disclosed, is likely to affect the price of a listed security. Examples are earnings forecasts, merger plans, or large share buy‑backs.

Connected Person – A person who is related to an insider through family ties, business relationships, or any other association that could enable the flow of UPSI.

Exam relevance: Many questions ask you to classify a person or information as insider/UPSI. Mis‑identifying these terms leads to incorrect answers on both definition‑based and scenario‑based questions.

The Regulations list several prohibited acts. The most critical are:

1. Trading in securities while in possession of UPSI (directly or through a tip‑off).
2. Communicating UPSI to any other person (including family members) who then trades on it.
3. Publishing or disclosing UPSI before it is made public.
4. Making any false statement or omission that could mislead investors.

These prohibitions are absolute; there are no safe‑harbor exceptions for personal investment decisions once UPSI is known. The only permissible route is to wait until the information is publicly disclosed.

For the exam, remember the four‑step test: (1) Identify the person, (2) Identify the information, (3) Check if it is UPSI, (4) Determine if a trade or communication occurs.

Every listed entity must maintain a compliance officer (CO) who monitors insider trading and ensures timely reporting. The CO must file a Form 5 with SEBI within two trading days of any insider transaction.

Additionally, insiders themselves must disclose their holdings and changes therein on a quarterly basis using Form 3. Failure to submit these forms on time attracts penalties.

Exam tip: Questions often give you a timeline (e.g., "An insider bought shares on 5th Jan. When must the CO report this?") – the answer is within two trading days of the transaction date.

SEBI may impose a combination of monetary fines, disgorgement of profits, and imprisonment for insider trading violations. The fine can be up to 25% of the profit earned or Rs. 5 crore, whichever is higher.

Disgorgement requires the insider to return any gains made from the prohibited trade. Imprisonment can be up to ten years for severe cases.

For the exam, remember the hierarchy: (1) Disgorgement of profit, (2) Fine, (3) Imprisonment. Questions may ask you to calculate the maximum fine based on given profit figures.

Every listed company must appoint a Compliance Officer (CO) who is responsible for implementing an Insider Trading Policy, maintaining a trade‑monitoring system, and conducting regular training for employees.

The policy typically includes a "blackout period" – usually 30 days before a quarterly earnings announcement – during which insiders are prohibited from trading.

Surveillance tools flag trades that occur close to the release of UPSI. The CO reviews flagged trades and decides whether to seek clarification or report to SEBI.

Since the 2015 Regulations, SEBI has issued circulars clarifying the definition of UPSI and expanding the scope of "connected persons" to include social media influencers who receive material non‑public information.

In 2022, SEBI introduced a mandatory electronic surveillance system for listed entities, making real‑time monitoring of insider trades compulsory.

For the exam, keep an eye on the latest circular numbers (e.g., SEBI/HO/INS/2022/123) – the question stem may reference a recent amendment to test your awareness of evolving compliance standards.

Mnemonic for the four‑step insider test: I‑U‑T‑A – Insider, UPSI, Trade/Communication, Action. If any step fails, the activity is permissible.

Remember the "30‑30‑10‑2" rule for compliance timelines: 30 days to draft policy, 30 days for training, 10 days for monitoring, and 2 days for reporting.

Common trap: Confusing "publicly available information" with "UPSI". Publicly available news that is already in the market does not trigger insider trading provisions.