Wikipedia of Finance - e-learning course on Insider Trading wikipedia Chapter - Insider Trading Regulations

SEBI’s New Prohibition of Insider Trading Regulations of 2015-2016


Trading on the basis of owning a company’s stock or having the confidential information of a company is a major threat to the businesses running worldwide. Such activities are named insider trading and is an illegal act in the country. The authorized personnel having access to the confidential information of a company often forget their loyalty for the companies. They leak or parcel the secret data to competitors or other companies in lieu of some extra money. In order to protect their stocks and confidential information, the government has come forward now. Govt. has passed regulations to ensure the responsibilities of authorized personnel in a company and they are supposed to face the consequences if they fail to perform their responsibilities. Here, I am going to give a view what the new “Insider Trading Regulations of Securities and Exchange Board of India (SEBI)” consists of and how it can be helpful to company owners.

The SEBI has come forward protect the rights of company owners and it’s new ‘prohibition of insider trading regulations’ has come into action from 15th May 2015. Gazetted on 15th January, 2015; the older regulation was announced in 1992 with the name of SEBI (Insider Trading) Regulations, which was modified to the SEBI (Prohibition of Insider Trading) Regulations in 2002. The new regulation has the same name, but has come as a substitution of insider trading regulation, 1992.

Provisions under the Companies Act, 2013:

After completing the listing agreement of SEBI, that is effective from 15/5/2015, any company is started under the Companies Act and on being listed with a Stock Exchange.

It becomes necessary to read out the Companies Act, 2013 of Insider Trading Regulations here:

(1) None including the directors as well as the key managerial personnel of a company have any authorization to into insider trading.

However, anything contained in this sub-section aren’t supposed to affect the communication required in the ordinary course of any profession, business or any other law.

Explanation – For the purpose of this section –

  • (a) What “insider trading” means
  1. An act of subscribing, selling, dealing buying or agreeing to subscribe, buy, sell or deal in confidential information, by any director or any managerial personnel or any other officer of an organization either as a principal or an agent if such director or key managerial personnel or any other officer of the organization who is reasonably expected to have access to any non-public price sensitive information and is responsible for the same; or
  2. An act of communication about bringing the confidential price sensitive information or interacting directly or indirectly any confidential price-sensitive information to any person;
  • (b) “Non-public information” – these consist of the information which may fully or partially affect a business, if leaked in public or gone to wrong hands.

(2) If any person violates the regulations, he shall be legally eligible to be punished with imprisonment for any term maximum to five years or with fine which is minimum 5 lakh Indian rupees, maximum to 25 crore Indian rupees or 3 times of the amount of profits made out of insider trading, whichever amount is higher, or with both. This rule is applied by Insider Trading Regulations body (SEBI).

Now the Govt. has become cautious, one is bound to refer the provisions included in the Companies Act, 2013 that are mentioned above. People outside the company or from the competitors companies can also be liable to leak the insider information. The new regulation authorizes the companies to do proper investigation and ask associated persons outside the company including clients and suppliers, to make disclosures of their holdings. In case someone refuses to help with the investigation, the responsibility of any regulatory scrutiny may shift to those who deny providing the information.

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