Abstract:
Insider trading remains one of the most persistent threats to fairness and investor confidence in Securities Market in India. In recent years, there is growing participation of retail investors in securities trading and detecting insider trading is harder. In such increasing complexity of trade practices, a regulatory body is essential to look after it. In India, SEBI is such a regulatory body. This paper deals with evolution of insider trading regulation in India by discussing Pre-SEBI era, through the foundational SEBI Act,1992, to the present SEBI (Prohibition of Insiders Trading) Act,2015. Research has adopted a doctrinal and analytical methodology. The paper analyzes powers and functions of SEBI, its key provisions and recent amendments (2024-2026). It further identifies shortcomings in enforcement, including evidentiary difficulties, delayed investigations, and emerging technological concerns. The paper then prescribed certain solutions and lastly concludes that while SEBI has substantially strengthened investor confidence and market integrity through its framework, but SEBI must continue to evolve to address challenges effectively.
Keywords: Insider Trading, Securities Market, Unpublished-price sensitive Information, SEBI, Market Integrity.
Introduction
Insider trading refers to the act of trading in company’s securities (such as stocks or bonds) based on Unpublished-price sensitive Information (UPSI) which is not known or available to public as it is unpublished. Insiders use company’s confidential information to gain profit or avoid potential loss, at the expense of other investors who lacks access to the same information. Insiders are any persons such as relatives, directors, employees, auditors or any individual who have access to UPSI. Such Insider Trading undermine market fairness, transparency, investor confidence, and destroys market integrity and hence there comes the need of Securities Market Regulation in India. Investors need confidence to invest their hard-earned money which can be sustained by market integrity, which is safeguarded through effective market regulation.
In India such market regulation is done by Securities and Exchange Board of India (SEBI). SEBI was established as statutory body on 12th April 1992 by the SEBI Act,1992. SEBIs headquarter is in Mumbai, but it has its regional offices all over India. It is the primary market regulator which oversees stock exchanges, listed companies, market intermediaries, and various participants in the securities market. SEBI formulates regulations, conduct investigations, impose penalties, and take actions against market misconduct, including insider trading. This is how SEBI as regulatory body upholds market integrity. Before SEBI, securities market was regulated by several governmental organizations, which created confusion and inefficiency. In 2014, government awarded new regulatory powers to SEBI for Insider Trading[1].
Research Methodology
This research adopts doctrinal and analytical methodology to examine regulation for Insider Trading and evaluate SEBIs role in ensuring market integrity. This work majorly relies on secondary sources including statutes, regulations, reports, and academic literature.
Review of literature
Andrew J. Meyer in this article published in the Missouri Law Review, defines Insider Trading as use of material nonpublic information in connection with the trade of stock or other securities. He cites classic example where corporate executive earns personal profit by trading on UPSI obtained through their position the company.[2]
A significant contribution to the development of Insider trading framework was the report of High-Level Committee chaired by Justice N.K. Sodhi (2013), who reviewed SEBI (Prohibition of Insider Trading) Regulations,1992 and submitted it to SEBI. Committee recommended clearer and more principle-based regulatory framework. The recommendations submitted formed a foundation of the SEBI (Prohibition of Insider Trading) Regulations,2015 replacing earlier 1992 regulations.[3]
A work in the International Journal for Multidisciplinary Research (IJFMR) mentions that 2015 Regulations and enhanced SEBI power emerged mainly due to Saradha Scam. It cites SEBIs annual report for the year ending 31March 2018 and highlights the challenges faced by SEBI, stating that around 85 insider trading cases were investigated by SEBI in 2017-18 but only 25 were concluded, and this is due to challenges in proving linkage of UPSI communication to actual trades.[4]
A ResearchGate study examines how well insider trading regulations is implemented in India between 1992 and 2015 is done. It states that SEBI investigated very few cases when compared to the size and growing activity of India’s stock market. Merely having legal provisions is not enough, but strong and effective implementation is also necessary. It also notes that SEBI has mandated listed companies to share important and price-sensitive information to stock exchanges before sharing it with any 3rd party, hence representing a step towards maintaining market integrity.[5]
A research paper by NLSIU focuses on insider trading regulations in context of corporate transactions, particularly mergers and acquisitions. It traces how legal defenses available to alleged insiders have evolved since 1992 regulations and discusses the scope of SEBIs investigative power. The study emphasizes the evidentiary challenges, noting that direct evidence is rarely available.[6]
The recent study published in the ‘Indian Journal of Law and Legal Research’ points out that algorithmic trading now accounts for 60% portion of market transactions which increases speed, complexity and anonymity of securities trading. However, SEBI (Prohibition of Insider Trading) Regulations, 2015 is based on traditional assumption calibrated to a human-paced market, where human actor receives confidential information and do a traceable transaction. This paper had argued that such framework is inadequate in addressing Insider Trading carried out through algorithms. [7]
Taking together, this body of literature shows Indias insider rates by SEBI. While IJFMR provides insights of SEBIs enforcement performance during 2017-18, some literature suggests insufficient attention has been given to the frameworks ability to address emerging challenges such as algorithmic and high-frequency trading. So, this paper tries to address this gap by discussing the question- ‘Has SEBI been successful in preventing insider trading and maintaining market integrity’?
Legal framework governing insider trading in India
SEBI was established in 1992 under the Securities and Exchange Board of India Act,1992. But how the securities were regulated before the SEBI, so before examining the present legal framework, including the SEBI Act,1992, it is necessary to first look at the pre-SEBI era.
Pre-SEBI ERA
Defence of India Act,1939 – Bill no.41 of 1939[8]
The Defence of India Bill,1939 was introduced in legislative assembly on 5th September 1939 and came into force on 6th October 1939, at a time when the concept of securities regulation didn’t exist as an independent area of law and public safety and national defence was the major concern rather than financial markets of colonial government. But what is worth noting that Section 2 of the Bill which dealt with rule making powers- also extended to controlling actions of securities or foreign exchange. This was certainly a wartime necessity as foreign exchange and capital movement were the matters of strategic importance during the war. There was no specialized framework for securities at that time- only a sign that one would be needed.
Capital Issues (Control) Act,1947
The Capital Issues (Control) Act,1947 was rooted in the Defence of India Rules of 1943 frame under the same 1939 legislation. Originally it was meant to channel capital towards war-related priorities. But even after the war the Act was retained and repurposed to regulate corporate capital-raising and ensure sensible use of national resources. According to Capital Issues (Control) Act, securities are ‘instruments issue or to be issued, or created or to be created, by or for the benefit of a company’[9]. Moreover the instruments mentioned, includes –‘Share, stocks, bonds, debentures, mortgage deeds, instrument creating or evidencing a charge of lien on the assets of company and instrument acknowledging loan to or indebtedness of the company and guaranteed by the third party’[10]. Even further provided that without approval from the central government, no company can publically offer the securities for the purpose of sale.[11] Moreover no person was even allowed to sell or purchase securities without the approval of the central government.[12]
Securities Contracts (Regulations) Act,1956
The aim of Securities Contracts (Regulations)Act,1956 was to ‘prevent undesirable transaction in securities by regulating the business of dealing therein, providing for certain other matters connected therewith’[13]. This Act was the first to mention a ‘recognised stock exchange’, providing for its ‘application and grant’[14]. But rules for these exchanges are subjected to government approval and stock exchange need to submit an annual report to central government[15], which also had powers to suspend any exchanges business-leaving the securities body with no real autonomy.
So all these three acts were under the control of government and there was no single regulatory body for this which led to setup of SEBI in 1988. At first, SEBI wasn’t a statutory body it was just a government resolution, so control was still with government. But then it was turned up into statutory body after the recommendations by Narasimham Committee (set up 14th Aug,1991, report submitted 17th Dec,1991)[16]. The real turning point, though was the 1992 Harshad Mehta scam. When the scam broke CBI had powers and not SEBI. SEBI was new and had almost no power over broker-investor dealings and then the market crashed, forcing major reforms, the biggest being SIBIs elevation to a full statutory regulator. Today, SEBI is the market regulation body.
Statutory Framework
SEBI Act,1992[17]
SEBI was established in 1992 to ‘provide for establishment of a board to protect the interest of investors in securities and to promote the development of and to regulate the securities market and for matters connected therewith or incidental thereto’. So here objectives of SEBI is to protect investor, promote securities market development and regulate securities market.
Chapter IV Section 11 of the Act defines functions and powers of SEBI. Its functions span three areas: Regulatory-Section11A (overseeing stock exchanges, registering and regulating intermediaries like brokers and depositors, and prohibiting insider trading and unfair trade practices), Developmental -Section 11AA( regulating mutual funds and collective investment schemes, and promoting investor education), and Enforcement( conducting inspections, imposing penalties, or exchanging information with other regulators). So SEBI exercises legislative, executive, and judicial powers all at once. Section 11B confers powers to SEBI to issue directions and Section11C provides powers for investigation.
Chapter V Section 12 talks about registration of intermediaries- Section 12(1) bars stock brokers, sub-brokers, share transfer agents, merchant bankers, underwriters, portfolio managers, investment advisers and other market intermediaries from buying, selling and dealing in securities except under, and in accordance with, the conditions of a certificate of registration obtained from SEBI. The provision applies broadly covering brokers, depositors, mutual funds, and venture capital funds though it allows a short transition period for those who were already operating before SEBIs establishment.
Chapter VIA prescribes penalties and Adjudication in which Section 15G prescribes Penalty for insider trading. It penalizes s person if they engage in any of the following:
- Trading in securities while in possession of UPSI.
- Communicating UPSI with someone else , except for legitimate purposes or in the ordinary course of business Or
- Advising, persuading, or encouraging another person to trade based on UPSI.
At its core, all these provisions of SEBI Act,1992 aims towards maintaining market integrity, ensuring transparency and accountability, and discourage insider trading. So, together all these sections forms the backbone of SEBIs insider trading enforcement framework.
SEBI(Prohibition of Insider Trading) Act,2015[18]
Today, SEBI(Prohibition of Insider Trading) Act,2015 is the main law governing market regulation which has replaced earlier SEBI Act,1992. This law aimed at stopping misuse of UPSI , promoting fair trading, and protecting market integrity and investor confidence.
Under Regulation 2(g), an “insider” means any person who is:
i) a connected person;
or ii) in possession of or having access to unpublished price sensitive information. This means even someone who don’t have any formal link of the company can be treated as an insider, as long as they have access to UPSI. The definition is broad, so liability isn’t
just limited to just directors or employees, but covers anyone who gets hold of confidential information.
Regulation 2(1)(d) provides definition of the “connected persons”. It is someone who is directly or indirectly associated with the company who could be expected to have access to UPSI.
Regulation 2(1)(n) defines UPSI. It is any information that is unpublished about a company or its securities and that is not known to public but it can significantly affect the stock price.
Regulation 3 talks about Communication and Procurement of UPSI- The Act prohibits everyone from communicating, sharing, or procuring UPSI, unless it is done for legitimate purposes. Under Regulation 3(5) and 3(6),companies must maintain a Structured Digital Database recording everyone with whom UPSI has been shared, preserved for at least eight years. This improves traceability and helps SEBI investigate potential violations. And ,the board of directors has to ensure that such sharing is properly recorded.
Regulation 4 prohibits trading while possessing UPSI- It bars insiders from trading while possessing UPSI so to ensure market fairness where all investors should have equal access to information before making investment decision . It also ensures transparency, and helps boost investor confidence.
Regulation 5 talks about Trading Plan- It permits insiders to adopt a trading plan that specifies their future trading activities in advance i.e., enabling insiders to undertake transactions according to pre-scheduled plan and because this plan is disclosed in advance, no changes can be made to it once approved. It helps prove that trade wasn’t UPSI based.
Regulations 6,7, & 7A impose disclosure obligations. It requires insiders, promoters, directors, and designated persons to disclose their shareholdings and securities transactions and these disclosures must be made at prescribed intervals and upon the occurrence of specified transactions. It enables SEBI to track trading activities.
Regulation 9, read with Schedules B and C, require listed companies to formulate a Code of Conduct, designate a Compliance Officer, and implement adequate internal control mechanisms to safeguard confidential information preventing the misuse or leakage of UPSI, thereby supporting market integrity and investor confidence.
Lastly, Section 15G, SEBI Act,1992 specifies penalties for violations which includes monetary penalties, prosecution, and being barred from trading (not only insiders for anyone who makes violations). Also, under regulation 7A, whistleblower protections are made, ensuring anonymity and safeguarding against victimization for those who report misconduct.
Recent Amendments (2024-2026)
- Widening the definition of “Connected Person”[19]
This is the Third Amendment made in December 2024. SEBI issued the SEBI (Prohibition of Insider Trading) (Third Amendment) Regulations,2024, where definition of “connected person” and “relative” was widened. Under the amended Regulations, category of deemed connected persons was expanded by replacing the term “immediate relative” with the broader tern “relative”. This matters as it widens the scope of individuals presumed to have access to UPSI, thereby strengthening SEBIs ability to monitor and investigate insider trading.
- Widening the definition of “UPSI”[20]
On March 2025, SEBI amended PIT Regulations to expand the scope of UPSI through a “deemed UPSI” approach, aligned with SEBI(LODR) Regulations,2015. This change was needed as companies were treating the earlier list as exhaustive. This amendment ensures that certain specific events are automatically treated as UPSI. It clarified that UPSI received from external sources must be recorded in the Structural Digital Database in two days and relaxed trading-window closure for such information.
- SEBIs Response to Technology-Driven Trading[21]
In February 2026, SEBI updated its Order-to-Trade Ratio (OTR) framework governing algorithmic trading, which the changes coming into effect from April 2026. This amendment widened the OTR exemption band for equity options and excluded algorithmic orders by Designated Market Makers from OTR computation altogether. Here the goal is stopping genuine traders from getting penalized, while still catching disruptive order behavior. However, this is not the amendment made in PIT Regulations,2015, it’s forming part of SEBIs separate market surveillance framework under its master Circular for Stock Exchanges and Clearing Corporations.
Shortcomings
Despite the strong legal framework governing insider trading in India, there are some challenges. SEBI often must rely on circumstantial evidence as direct evidence is hard to find and misuse of UPSI is rarely available and this makes enforcement proceedings lengthy and complex. There have shown that there is delay in investigation and adjudication. Though through amendments -SEBI(PIT) Act,2015 has strengthened but existing regulations do not specifically address the opportunities created for misuse of confidential information by rapid technological developments such as algorithmic and high-frequency trading.
Solutions
To address these shortcomings, SEBI should continue improving its technology-driven surveillance mechanisms, including use of AI and data analytics. Further, regulatory framework can be strengthened by provided clear guidance on emerging forms of UPSI misuse, faster adjudication process, and stronger whistleblower incentives. Such measures would improve SEBIs ability to prevent insider trading and enhance market integrity in an increasingly complex securities market.
Conclusion
Despite having a legal framework and a statutory regulating body, Insider trading remains one of the most significant threats to market integrity. Indian regulatory framework has evolved from government control regime to specialized system under SEBI, reflecting the attention given and steps taken towards maintaining market integrity in a growing economy. This represents genuine institutional progress.
The SEBI Act 1992 laid the foundation by vesting SEBI with regulatory, developmental, and enforcements power. Further SEBI(PIT) Act, 2015 and the recent amendments demonstrates the willingness of SEBI to adapt to evolving market realities. These all have significantly contributed to enhancing transparency and accountability within the securities market. However effective regulation depends on enforcement and not merely on existence of legal provisions. Certain shortcomings do exist but that can be addressed by adapting to certain reforms and measures. It is therefore, for the long-term success of insider trading regulation in India, necessary for SEBI to continuously remain adaptable and evolved itself alongside technological and market developments.
– Srushti Prashant Sawalakhe, Indian Law Society (ILS), Pune
[1] Groww, https://groww.in/p/insider-trading. – accessed on 18 June 2026
[2] Andrew J. Meyer, “Insider Trading Under Sarbanes- Oxley: Bypassing the Personal Benefit Test” (2021) 86(3) Missouri Law Review < https://scholarship.law.missouri.edu/cgi/viewcontent.cgi?article=4515&context=mlr> Accessed on 18 June 2026.
[3] Securities and Exchange Board of India, Report of the High Level Committee to Review the SEBI (Prohibition of Insider Trading) Regulations, 1992 (7 December 2013) (Chairman: Justice N.K. Sodhi) https://www.sebi.gov.in/sebi_data/docfiles/26940_t.html accessed 19 June 2026.
[4] Gayathri Narayanan N, ” An Analysis of the Security Laws Relating to Insider Trading in India and Its Trends Internationally,” International Journal for Multidisciplinary Research (2023) https://www.ijfmr.com/papers/2023/6/9964.pdf accessed 19 June 2026..
[5] ResearchGate, ‘Insider Trading Investigations by SEBI’ https://www.researchgate.net/figure/nsider-Trading-investigations-by-SEBI_fig1_312520161 accessed 19 June 2026.
[6] Rajat Sethi, Sudip Mahapatra, Jinaly Dani, “Insider Trading Regulations: Implications for M&A,” NLS Business Law Review, National Law School of India University https://repository.nls.ac.in/cgi/viewcontent.cgi?article=1038&context=nlsblr accessed 19 June 2026.
[7] Katriona Sen & Aneesha Biswas, “Revisiting Insider Trading in the Age of Algorithmic Trading: Is the SEBI Framework Adequate?” Indian Journal of Law and Legal Research (2025) https://www.ijllr.com/post/revisiting-insider-trading-in-the-age-of-algorithmic-trading-is-the-sebi-framework-adequate accessed 19 June 2026..
[8] Defence of India Act, 1939.
[9] Capital Issues (Control) Act, 1947, S 2(1) (e).
[10] Capital Issues (Control) Act, 1947, S 2(1) (e) (i, ii, iii & iv)..
[11] Capital Issues (Control) Act, 1947, S 3(2) (b).
[12] Capital Issues (Control) Act, 1947, S 5.
[13] Securities Contracts (Regulation) Act, 1956.
[14] Securities Contracts (Regulations) Act, 1956, S2 (f), S3 &4.
[15] Securities Contracts (Regulation) Act, 1956, S 7, 8 & 9.
[16] Jayanth R. Varma, Narasimhan Committee Report – some further ramifications and suggestions, working paper no. 1009, February 1992.
[17] The Securities Exchange Board of India Act, 1992.
[18] Securities and Exchange Board of India (Prohibition of Insider Trading) Act,2015.
[19] Securities and Exchange Board of India (Prohibition of Insider Trading) (Third Amendment) Regulations, 2024.
[20] Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations 2025
[21] Securities and Exchange Board of India, Circular No. HO/47/11/16(2)2025-MRD-POD2/I/4113/2026, Modification to the Framework on Order-to-Trade Ratio for Algorithmic Orders.