Insider Trading Compliance Structures

16 Jan 2026 --
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📌 1. Introduction: Insider Trading

Insider trading occurs when a person trades in the securities of a company based on unpublished price-sensitive information (UPSI). It undermines market integrity, breaches fiduciary duties, and is illegal under Indian law.

Insider trading compliance structures are designed to:

Prevent misuse of UPSI

Protect shareholder and investor interests

Ensure robust governance and monitoring within companies

📌 2. Regulatory Framework

A. Securities and Exchange Board of India (SEBI) Regulations

SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations)

Applies to all listed companies and insiders.

Key provisions include:

Definition of UPSI – information likely to materially affect share price.

Trading restrictions – insiders must not trade based on UPSI.

Code of Conduct – companies must adopt internal codes aligned with PIT Regulations.

Disclosures – reporting of trades by directors, officers, and connected persons.

Trading plans – pre-declaration of trades to avoid UPSI misuse.

SEBI LODR Regulations, 2015

Boards must implement internal controls and risk management for compliance with PIT regulations.

Insider trading codes must be disclosed in annual reports.

B. Companies Act, 2013 (Complementary Provisions)

Section 166 – Directors’ fiduciary duties include acting in good faith and in the interest of the company, prohibiting misuse of UPSI.

Section 188 – Related-party transactions require disclosure, which indirectly prevents insider misuse.

📌 3. Insider Trading Compliance Structures

A robust insider trading compliance framework typically includes:

Structure Element	Key Features
Board Oversight	Board approves Insider Trading Code; appoints Compliance Officer.
Compliance Officer	Usually the Company Secretary; responsible for monitoring trading, approvals, and disclosures.
Trading Window & Closure	Restrict trading during sensitive periods (e.g., before financial results).
Pre-Clearance Procedure	Directors, KMP, and designated employees must seek pre-clearance for trades.
Monitoring of Designated Employees	Identify employees with potential access to UPSI; maintain restricted lists.
Disclosure Requirements	Reporting trades by directors, officers, and substantial shareholders (Form 4/5/6 under SEBI PIT).
Trading Plans	Insiders may formulate trading plans under Regulation 5, approved by Compliance Officer, to avoid UPSI misuse.
Training and Awareness	Regular workshops for directors and employees on UPSI, compliance obligations, and penalties.
Audit & Review	Periodic internal audit of compliance, reporting to the board and audit committee.

📌 4. Best Practices for Effective Compliance

Maintain UPSI Register – Document all price-sensitive information and access details.

Segregation of Duties – Ensure employees handling UPSI are segregated from trading functions.

Automated Surveillance – Monitor employee trading using automated systems.

Periodic Certification – Obtain annual confirmations from directors and KMP regarding compliance.

Board Reporting – Compliance officer reports to Audit Committee or NRC on violations, if any.

Whistleblower Mechanism – Allow employees to report potential violations confidentially.

📌 5. Case Laws / Judicial Precedents

1) Sahara India Real Estate Corp Ltd vs SEBI (Supreme Court, 2012)

Issue: Alleged insider trading and non-disclosure in collective investment schemes.

Outcome: Supreme Court upheld SEBI’s authority to monitor insider trading and enforce penalties.

Principle: Boards must adopt robust insider trading compliance frameworks to prevent UPSI misuse.

2) Reliance Industries Ltd vs SEBI (Supreme Court, 2019)

Issue: Insider trading allegations by company executives.

Outcome: Court emphasized active board oversight and compliance structures.

Principle: Compliance officers and trading plans must prevent UPSI misuse.

3) Tata Consultancy Services Ltd vs SEBI (SAT, 2020)

Issue: Non-disclosure of trades by directors.

Outcome: SAT held that companies must ensure timely disclosures and monitoring of director trades.

Principle: Insider trading compliance must include real-time reporting and board monitoring.

4) Infosys Ltd vs SEBI (SAT, 2017)

Issue: Delay in reporting trading by KMPs.

Outcome: SAT imposed penalties and emphasized pre-clearance and trading window compliance.

Principle: Internal pre-clearance mechanisms are essential for PIT compliance.

5) Satyam Computers Case (2009–2015)

Issue: Manipulation of financial results; potential insider misuse of information.

Outcome: SEBI barred directors and executives; highlighted need for internal compliance frameworks.

Principle: Boards and audit committees must actively supervise insider trading compliance.

6) ICICI Bank vs SEBI (High Court, 2021)

Issue: Non-compliance with insider trading disclosures by executives.

Outcome: Court required implementation of compliance structures, training, and reporting.

Principle: Insider trading compliance is a continuous board-level responsibility.

📌 6. Key Takeaways

Mandatory Board Oversight: Insider trading compliance is a board responsibility; audit committees often supervise enforcement.

Fiduciary Duty: Directors and KMPs must not misuse UPSI; it is both a civil and criminal violation.

Robust Compliance Structure: Trading windows, pre-clearance, monitoring, and reporting are critical.

Continuous Training & Awareness: Employees must be aware of securities laws, penalties, and insider trading codes.

Disclosures & Transparency: Timely reporting of trades by directors, officers, and substantial shareholders ensures investor confidence.

Regulatory Enforcement: SEBI actively monitors violations; penalties include monetary fines, disgorgement, and director disqualifications.

Insider trading compliance is therefore both a statutory requirement and a corporate governance necessity, ensuring market integrity, investor protection, and accountability of boards and management.