Insider trading

The most misunderstood area in securities law, and the misunderstanding is specific: people believe it is about using confidential information. In India it is about possessing it.

Unpublished price sensitive information

The definition: "any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities".

Three elements — it concerns the company or its securities, it is not generally available, and on release it is likely to materially affect the price. Nothing about documents, confidentiality markings or how you learned it.

The regulation then lists what it ordinarily includes, and the list was substantially widened with effect from 10 June 2025:

Ordinarily UPSI
Financial results
Dividends
Change in capital structure
Mergers, de-mergers, acquisitions, delistings, disposals, expansion of business, and the award or termination of orders or contracts not in the normal course of business
Changes in key managerial personnel, other than by superannuation or end of term, and resignation of a statutory or secretarial auditor
Change in ratings, other than ESG ratings
Fund raising proposed to be undertaken
Agreements that may impact the management or control of the company
Fraud or defaults by the company, its promoter, director, key managerial personnel or subsidiary, or the arrest of any of them, whether in India or abroad
Resolution plans, restructuring or one-time settlement of bank borrowings
Admission of a winding-up petition or of an insolvency application

"Ordinarily including but not restricted to" — the list illustrates, it does not limit. The definition governs.

Generally available information

"Information that is accessible to the public on a non-discriminatory basis" — and, since an amendment, it "shall not include unverified event or information reported in print or electronic media".

That exclusion matters. A newspaper rumour does not convert UPSI into public information. If it did, anyone wishing to trade on inside knowledge could first arrange for it to be hinted at somewhere and then claim the market already knew.

Who is an insider

"Any person who is: (i) a connected person; or (ii) in possession of or having access to unpublished price sensitive information."

Limb (ii) has no relationship requirement at all. And the regulation's own Note removes any doubt: anyone in possession of or having access to UPSI "should be considered as an 'insider' regardless of the manner in which one came into possession" of it.

So insider status is a state, not a role. You do not need to work there, know anyone there, or have obtained the information improperly. Overhearing is enough.

The two prohibitions

Communication — regulation 3(1). No insider shall communicate, provide or allow access to UPSI to any person, including other insiders, "except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations."

The regulation's Note explains the intent: to handle such information "strictly on a need-to-know basis", and to lead organisations to develop need-to-know practices. There is a companion machinery — a structured digital database recording with whom information was shared, with PAN, time stamping and audit trails, so that the trail of a leak is reconstructible after the fact.

Trading — regulation 4(1). No insider shall trade in listed or to-be-listed securities "when in possession of unpublished price sensitive information".

The reverse burden

This is the provision to remember. The Explanation to regulation 4:

When a person who has traded in securities has been in possession of unpublished price sensitive information, his trades would be presumed to have been motivated by the knowledge and awareness of such information in his possession.

And then: "the insider may prove his innocence by demonstrating the circumstances including the following" — followed by an enumerated list.

Read the structure. SEBI does not have to prove you used the information, or that you intended anything. Possession plus a trade creates a presumption, and it then falls to you to displace it. That is a deliberate choice, and the reason for it is practical: intent inside someone's head is close to unprovable, whereas possession and trading are both documentable.

The enumerated defences are narrow and mostly structural:

• an off-market inter-se transfer between insiders who held the same UPSI without breaching regulation 3, where both made a conscious and informed decision — reportable to the company within two working days, and by the company to the exchange within two trading days
• a transaction through the block deal window between persons similarly placed
• a transaction carried out pursuant to a statutory or regulatory obligation to carry out a bona fide transaction
• the exercise of stock options at a pre-determined exercise price
• for non-individual insiders, that the individuals who possessed the information were not the individuals who decided to trade, with arrangements evidencing that

What is not on the list is "I had a good reason of my own". That is the point of the design.

Trading plans

Because possession is the test, insiders with routine access face a problem: they are almost always in possession of something. The regulations therefore allow a trading plan — a schedule of trades formulated and disclosed in advance, executed later regardless of what the insider then knows. The provisions were revised in 2024 and 2025 to make them more usable.

The logic is clean. If the decision was made and published before the information existed, the trade cannot have been motivated by it.

Working the problem

Overheard in a café, no connection to the company, shares bought.

Are you an insider? Yes. You are in possession of UPSI, and limb (ii) of the definition does not ask how you came by it. The Note is explicit that the manner of coming into possession is irrelevant. Your complete lack of connection to the company is not a defence — it would only matter if liability ran through the "connected person" limb, and it does not have to.

Is the information UPSI? An unannounced acquisition is squarely within the illustrative list, is not generally available, and is of a kind likely to materially affect the price. Yes.

Have you breached regulation 4(1)? On the face of it yes: you traded while in possession.

What must you establish? You must displace the presumption that your trade was motivated by the information. None of the enumerated circumstances fits — this was not an inter-se transfer, not a block deal, not a statutory obligation, not an option exercise. The list is open ("including the following"), so in principle you could try to show the trade was unconnected, but you would have to prove a negative about your own motivation while holding the information and having bought the stock. Practically, that is close to impossible, which is the intended effect.

Did you breach regulation 3? Not by overhearing. You would if you passed it on — including to another insider, since regulation 3(1) says "including other insiders" — unless the communication were in furtherance of legitimate purposes, which a tip to a friend plainly is not.

What you should have done: not traded, and not told anyone. The uncomfortable truth is that information arriving by accident imposes an obligation you did not choose, and the only safe response is inaction in that security until the information is generally available.

The two speakers are separately exposed: discussing unannounced UPSI where strangers can hear is hard to reconcile with handling it on a need-to-know basis under regulation 3.

The point

Indian insider trading law turns on possession, not use: anyone in possession of unpublished price sensitive information is an insider regardless of how they came by it, and trading while in possession raises a presumption that the trade was motivated by it, which the person must then rebut from a narrow list of mostly structural defences. Information already hinted at in the media does not count as generally available, and communication is confined to legitimate purposes on a need-to-know basis, backed by a database that makes leaks traceable. The design exists because intent is unprovable while possession and trading are both documentable — so overhearing something imposes an obligation you did not ask for.