Written by Upstox Desk
9 min read | Updated on October 01, 2025, 15:40 IST
Insider Trading Definition
Insider Trading Meaning
Who is an Insider?
Types of Insider Trading
What Are The Effects Of Insider Trading?
Who Regulates Insider Trading in India
SEBI regulations
The Restrictions/Prohibitions imposed by SEBI
Insider Trading Examples - Cases Of Insider Trading In India
Conclusion
Frequently Asked Questions
Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.
Insider Trading is the act of purchasing, selling, underwriting, or agreeing to underwrite the securities or stocks of an organization by key executives/personnel of the company who have access to UPSI - Unpublished Price Sensitive Information regarding the company.
This is malpractice in which a company's unpublished sensitive information is used to trade in the company's securities. Using this information to make an improper profit or loss is called Insider Trading. The information is said to be "price sensitive" because it can affect a company's share price in the market.
An insider is a person who is a part of the company whose shares he trades. He can be a person who owns more than 10% of the company's stock, for example, a company's directors, presidents, and senior executives. Sometimes the insider can be someone who isn't a part of the company but still has ample confidential information on stock performance from a real company executive. Some NSE Insider Trading examples are:
This can be legal or illegal, depending on the type of material information available to the insider. If the insider has non-public information, they are prohibited by law from trading their existing stock for that company. On the other hand, if the information is already public, these people can trade safely without taking legal action against them.
Misuse of inside information is discouraged for several reasons:
Several countries have objected to this practice. The USA was the first country to take action against Insider Trading. The UK, too, followed suit and imposed many restrictions on administrators to control the practice.
The Securities and Exchange Board of India SEBI, under the Companies Act and SEBI Regulations 1992, and the SEBI (Prohibition of Insider Trading) ("PIT") Regulations, 1992, strictly regulates NSE Insider Trading in India today. Any merchant or insider caught violating the various regulations imposed by the government agency can be subject to hefty fines.
The penalty under SEBI Act 1992 (Section 15G) and Companies Act 2013 (Section 195) cannot be less than INR 10 lakhs and may extend to INR 25 crores or 3 times the profit of the tort of 'insider' as the case may be.
The SEBI has drafted the SEBI Regulations 2015, which sets out the rules for the prohibition and restriction of Insider Trading in India.
The Insider Trading regulations provide that the transmission of any confidential information related to a company by an insider is prohibited unless authorized.
The information misused by the person or another person on their behalf will be considered a violation, which will be treated as a criminal offence under the law. This offence is punishable by imprisonment of up to 10 years or a fine of up to 25 crores, whichever is greater. Under the SEBI rules, the arbitrator may impose a penalty on anyone who violates the provisions of the rules other than the offence committed under section 24 of the act.
The Insider Trading regulations impose the following restrictions:
The Regulations restrict/prohibit Insiders from communicating, providing, or providing access to UPSI related to any publicly traded company or security to any person, including other Insiders.
These regulations restrict/prohibit a person from purchasing a UPSI from an insider related to a publicly traded company or securities to any person, including other insiders.
The Regulation restricts/prohibits an insider, when in possession of UPSI, from dealing in securities listed or proposed for listing on a recognized stock exchange.
SEBI also has the authority to investigate NSE Insider Trading and related matters. SEBI may exercise investigative powers for two main reasons:
Under the Insider Trading regulations, company founders will be held liable regardless of their shareholder status if they violate Insider Trading standards by using price-sensitive unpublished information. Of society without a legitimate purpose.
Legal Insider Trading and Exceptions to the Rule
Countless other cases are pending. However, the rate of conviction and the sentence according to the results of SEBI are generally very limited. The government authority has also received violent criticisms due to the poor application of commercial regulations. However, as a responsible trader, you should understand the rules established by the authoritative body to reduce such instances of NSE Insider Trading.
SEBI has a long way to go to strengthen the governance of the NSE Insider Trading laws as it lags in many ways, such as the lack of technical experience, making it very difficult for SEBI to catch the culprit.
Even if SEBI can identify the culprit, initiating Insider Trading cases is difficult because these allegations are usually based on circumstantial evidence, which makes them difficult to prove. SEBI does not have the authority or power to wiretap phones.
With such strict rules against Insider Trading, obtaining fines, and imprisonment, investors should ensure that they do not engage in such illegal activities by being aware of its rules and regulations.
Designated Individuals and they are next of kin are prohibited at all times from communicating directly or indirectly with any person, or providing any access, except for the pursuit of 'legitimate purposes, the performance of obligations, or compliance with legal obligations. Insider trading is prohibited at any time by a designated person or their close associates. By the policies of SEBI, a Designated Person who buys or sells any number of securities of the company may not enter into a contrary transaction within 6 months of the date.
The Compliance Officer will specify a trading period, referred to as the "Trading Window", which allows trading in the company's securities. Typically, the company announces a specific period during which trading in the company's securities is limited, and this is referred to as the "closing of the trading window". Designated Persons and their immediate family members are not permitted to trade in the company's securities during this period. When the trading window is not closed, it will be considered OPEN for trading, subject to compliance with the Code and the quantity/value limit of the shares indicated in the Code.
Disclosure of the equity investments of the company:
Any employee/director/designated officer who trades in securities or provides information for trading in securities in violation of the provisions of the Code may be disciplined, and the company may take appropriate action. In the event of a violation of the provisions of the Code, the following actions may be taken against Insiders/Designated Persons:
SEBI may also take similar punitive measures prescribed in the SEBI Act, 1992, including:
Insiders must take the following steps to prevent insider trading:
About Author
Upstox Desk
Upstox Desk
Team of expert writers dedicated to providing insightful and comprehensive coverage on stock markets, economic trends, commodities, business developments, and personal finance. With a passion for delivering valuable information, the team strives to keep readers informed about the latest trends and developments in the financial world.
Read more from Upstox