SEBI and insider trading

Gist of provisions of SEBI Act, 1992 dealing with Insider Trading.

  1. Section 12A(d) prohibits, inter alia, engaging in insider trading.
  2. Section 11(2)(g) empower SEBI to take appropriate measures to protect the interest of investors in securities and to promote the development of securities market and to regulate securities market. Such measure of SEBI includes, inter alia, to prohibit insider trading.
  3. Section 11(2A) Where SEBI has reasonable grounds to believe that any listed public company or other public company intending to get its securities listed on any recognised stock exchange (other than market intermediary) has been indulging in, insider trading or FUTP, it (SEBI) may order inspection of books and records of such company.
  4. Proviso to Section 11(4) Where SEBI has reasonable grounds to believe that any listed public company or other public company intending to get its securities listed on any recognised stock exchange (other than market intermediary) has been indulging in, insider trading or FUTP, it (SEBI) may – (i) impound and retain the proceeds or securities in respect of any transaction which is under investigation; (ii) attach, after passing of an order on an application made for approval by the Judicial Magistrate of the first class having jurisdiction, for a period not exceeding one month, one or more bank account or accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of SEBI Act, or the rules or the regulations made thereunder : Provided that only the bank account or accounts or any transaction entered therein, so far as it relates to the proceeds actually involved in violation of any of the provisions of SEBI Act, or the rules or the regulations made thereunder shall be allowed to be attached; or (iii) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation.
  5. Section 11C(9): SEBI may order investigation, inter alia, in the affairs of any listed public company or other public company intending to get its securities listed on any recognised stock exchange (other than market intermediary) and only in case of insider trading or market manipulation by such company, the Magistrate or Judge of the Designated Court after considering the application and hearing the Investigating Authority may, by order, authorise the Investigating Authority ā€“ (a) to enter, with such assistance, as may be required, the place or places where such books, registers, other documents and record are kept; (b) to search that place or those places in the manner specified in the order; and (c ) to seize books, registers, other documents and record, it considers necessary for the purposes of the investigation.
  6. Section 11D:After inquiry, if SEBI finds that any listed public company or other public company intending to get its securities listed on any recognised stock exchange (other than market intermediary) has indulged in insider trading or market manipulation, then SEBI may pass an order requiring such company to cease and desist from committing or causing such violation:
  7. Section 15G:  prescribes penalty for insider trading. If any insider who,ā€”

(i) either on his own behalf or on behalf of any other person, deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price-sensitive information; or
(ii) communicates any unpublished price-sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or
(iii) counsels, or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price-sensitive information,

shall be liable to a penalty which shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher.

SEBI has framed SEBI (Prohibition of Insider Trading) Regulations – also known as PIT Regulations.

PIT Regulations, 1992 which were brought to force from 19th November 1992 hold ground till 15th May 2015, From 16th May 2015, new PIT Regulations, 2015 is brought to force. Comparison of 2015 and 1992 PIT Regulations is here.