Insider Trading

The SEBI has a significant amount of power, and with the assistance of the legislature, it is in a decent position to address future dangers to investors’ confidence, financial integrity, and indeed the Indian economy.[1]  This is because the legislature has given SEBI permission to deal with these issues.

Regulations on insider trading are one kind of securities legislation that is enforced by several different nations. Regulators of financial markets throughout the world have come up with strict guidelines for the dissemination of confidential information. It makes sense that the way these instruments are run has changed along with the growth of the economy since the success of these businesses shows how much trust (and money) the public has in them.[2]

However, for there to be efficient capital markets, a small but vociferous group of academic economists has been campaigning for a long time and with a lot of passion for the legalization of insider trading. These industry professionals believe that the efficient operation of capital markets would be improved as a result of this. This line of reasoning has been completely disregarded by the regulators.[3] Despite this, the inability to recognize market manipulation, the difficulties in enforcing regulations, and the issues surrounding privacy make this a topic that should be pursued further in the context of India.[4]


Insider trading is when a person with unusual access to non-public information about a company or its securities that is likely to significantly change the market price of those securities when it is made public trades in the share capital of a publicly traded company or a company that will soon be publicly traded. This is against the law. Insider trading is against the law because it can change the market price of a security by a lot when the information comes out.

Most countries have made insider trading illegal because it hurts investors’ trust in the market. Insider trading is against the law because dealing with important non-public information is seen as either dishonest and fraudulent because of the insider’s fiduciary duties to the average investor or unpleasant because not everyone has the same access to insider information. Both of these ways of looking at it make it unethical and fraudulent to deal with important private information. Since insiders have a fiduciary duty to look out for the best interests of the average investor, it is considered dishonest and deceptive for them to trade with information that is not public.

These ideas of fairness are based on the rules that say you can’t do business while in possession of important non-public information. The SEC just recently approved the Securities and Exchange Board of India (PIT) Regulations, 2015. The “Insider Trading Regulations, 2015” is another name for these rules. There are times when these rules are called the “Insider Trading Regulations, 2015.”


  1. The Committee of P.J. Thomas:

The Committee chaired by Polayil Joseph Thomas was responsible for putting together the report (“the P.J. Thomas Report”). [5] Recommendations of this group included mandatory disclosure rules as well as limits that were to be placed on stock market speculators who generate “quick returns.”[6]

The Companies Act of 1956, as it existed at the time, included sections 307 and 308 that were subsequently altered to fit these suggestions.[7]

The P.J. Thomas Report states, among other things, that the investment market is of “major national significance” and that leaving it unmanaged or badly governed would be a “grave breach of public responsibility” that would only result in the affluent becoming increasingly wealthier. This is one of the P.J. Thomas Report’s findings.

During the early decades of the Republic of India, there were no specific rules or regulations governing insider trading. It makes sense to think that the lack of these rules and regulations made things less efficient. 

  • The Sachar & Patel Committee

“Sections 307 & 308 of the Companies Act of 1956 explain the flaws in India’s insider trading laws, which contribute to the frequency of this unlawful behavior”. Both reports incorporated this advice that India must enact a separate law to control insider trading. Both reports incorporated this advice.

  • The Abid Hussain Committee

The Abid Hussain Committee, which was created in 1989 and underlined the necessity for both civil and criminal penalties for insider trading and offered more backing for this notion.

  • SEBI [ Insider Trading] Act of 1992

The shortcomings of India’s insider trading regulations, as detailed in Sections 307 and 308 of the Companies Act of 1956. The Sachar Committee and the Patel Committee both recommended that India enact separate laws to outlaw insider trading during their respective investigations. Both reports offered this idea. More backing for this proposal was supplied by the Abid Hussein Committee, which was created in 1989 and underlined the necessity for both criminal and civil sanctions for insider trading. Insider trading, according to the committee, should be considered a crime. As a consequence of Central Government efforts, the Securities and Exchange Board of India (Insider Trading) of the SEBI Act of 1992 went into force in 1992 as a single, comprehensive law governing insider trading.

  • The SEBI (PIT) Regulations of 2015

The SEBI (PIT) Regulations of 2015 were revised as recently as April 1, 2019. In conjunction with the SEBI Act of 1992, these laws provide the SEBI, India’s market regulator, regulatory and investigative authority in insider trading situations.

  • The Commission Chaired by Justice N.K.Sodhis

Identified the necessity to “combat insider trading” on the securities market to preserve investor trust and the integrity of price discovery. The 2015 Insider Trading Regulations were based on a panel constituted by Justice N.K.Sodhis. Significant changes were made to these laws, including as expanding the definitions of “insider,” “connected person,” and “unpublished price sensitive information” (“UPSI”), rationalizing disclosure events, and allowing trading strategies.

  • Report and Amendments from T.K. Viswanathan for the Year 2019

In its report on fair market conduct, known as the “T.K. Viswanathan Report,” the Committee on Fair Market Conduct offered a number of proposals that can be broadly categorized into three groups:

(a) market manipulation and fraud, as well as proposed amendments to the SEBI (Prohibition of Fraudulent and Unfair Trade Practices in the Securities Market) Regulations of 2003;

(b) insider trading and the associated code of conduct, as well as proposed amendments to the SEBI (Prohibition of Insider Trading Regulations), 2015; and

(c) surveillance, investigation, and enforcement recommendations.


SEBI v. Rakesh Agarwal (2004)

Rakesh Agarwal v. SEBI is largely regarded as one of the most significant decisions on the misappropriation theory of insider trading in India. The case was heard and determined by India’s highest court.

“During the course of the investigation, the appellant, in his capacity as Managing Director of UPSI and as a negotiator while the parties were in the process of negotiating, was aware of this material breach According to the investigation’s findings, the appellant acquired the shares after learning about UPSI.[8]

As a direct result, regulations have been imposed to make such transactions more formal. In Rakesh Agarwal v. SEBI, further references were made to the following SAT decisions.

Cady, Roberts, and Company

When the UPSI is utilized for personal advantage or when the individual gains from the UPSI, it is argued that a violation of the fiduciary duty that the corporate insider is required to maintain as part of their position as an insider has occurred. This responsibility is imposed on the business insider due to their insider status.[9]

In Chiarella v. United States,

it was determined that the Cady, Robert’s standard based merely on an element of unfairness as opposed to an element of dishonesty, and that

“Not all instances of economic injustice constituted criminal transactions.” [10]The judgment specifically said this.

Dirks vs. SEC

The relevance of “manipulation or dishonesty” or “an inappropriate motive” in assessing whether an insider breached their fiduciary duty was explained.[11]


The Securities and Exchange Board of India (SEBI) was succeeded in January 2015 by the Insider Trading Regulations, 2015, more than two decades after India’s first significant insider trading regulation was passed. This happened in India when the nation passed its first significant insider trading law. This happened when the SEBI (prohibition of insider trading) rules were implemented in 2015. The Insider Trading Regulations of 2015 were implemented in response to Justice N.K. Sodhis’ commission’s recommendations.

  1. Significant changes included the expansion of the definitions of “insider,” “connected person,” and “unpublished price-sensitive information” (commonly known as “UPSI”), as well as the simplification of the procedure for establishing trading strategies.

(a)Under the Insider Trading Regulations of 2015, those in possession of a UPSI are prohibited from trading listed or soon-to-be-listed securities.

(b) Insiders are not permitted to discuss or acquire UPSI information, nor are they permitted to provide, provide, or otherwise allow access to UPSI information to a listed or prospective listed business or its securities. Furthermore, insiders are not permitted to provide, give, or otherwise provide third-party access to UPSI information.

Insiders are also prohibited from disclosing UPSI information to a publicly listed company or a firm considering going public. Furthermore, if an insider is determined to have leaked UPSI information, it is prohibited to acquire or sell a weapon. Despite this, acquiring or purchasing UPSI is not illegal if it serves a reasonable purpose, assists someone in accomplishing their work, or relieves them of legal duties.

  • According to the 2015 Insider Trading Regulations, promoters, directors, and senior management of publicly traded companies are obliged to provide particular disclosures both at the company’s inception and on a continuing basis.

Initial Disclosure: Within seven days of being assigned to a key management or director position in the company or becoming a promoter, that person must disclose his or her ownership of the firm’s stocks as of the date of appointment or becoming a promotion. Whoever is identified as the company’s top management or director is subject to this rule. Everyone who joins the company as a promoter or who is promoted to a managerial or director position is subject to this stipulation.

Continuous Disclosure: If the value of the stocks transferred (in a single transaction or a series of transactions over a calendar quarter) exceeds Rs. 1,000,000, the promoter, employee, or director of the firm is obliged to report the number of shares purchased or sold over the preceding two trading days. This rule kicks in if the total amount of stock exchanged (in a single transaction or a series of transactions during a calendar quarter) is more than Rs. The most current currency rate must be taken into account when dealing with derivatives.



The 2015 PIT Regulations can catch people who talk to each other or do business on WhatsApp.[12]

FIRST STEP, check to see if the information is UPSI:

At the time this non-public information was sent or traded, it was presumed that it would have a big effect on the share prices of the companies. Under the 2015 PIT Regulations, “financial performance” is what is meant by “unpublished price-sensitive information.”[13]

SECOND STEP, find out if the people are connected.

A closer look at Regulation 2(d) of the 2015 PIT Regulations shows that these people are “indirectly” “associated with a firm” “in any capacity, including frequent communication,” which gives them “access to non-public price-sensitive information.” In the WhatsApp cases, it is possible to prove that group members did not have any kind of contract, fiduciary relationship, or job with the company.[14]

If a connection can be made, it doesn’t matter how far away the company is from the person or people in question. The legislative note to Regulation 2(d) says that it is meant to apply to “anyone who would have or might get unpublished price-sensitive information about any company or class of companies through any connection.” Because of this, everyone who can use UPSI is connected.

In the WhatsApp events that SEBI looked into, the person who set up the WhatsApp group and gave the UPSI could send the UPSI to any member of the WhatsApp group. Section 2(g) of the PIT Regulations for 2015 says that these people are insiders because they “have” or “have access to” UPSI.

THE LAST STEP, is to show that the insider or insiders in question broke Regulations 3 and 4 of the 2015 PIT Regulations by trading or communicating on UPSI:

Regulation 3(1) says that you can’t talk to or get into UPSI if you don’t have a good reason, a responsibility, or a legal obligation to do so.

This clause applies to the person who posted the UPSI on WhatsApp in the first place. No goal, responsibility, or obligation could be accomplished with the goal of getting around the rules. The idea of “harmonious interpretation” says that exceptions to a rule shouldn’t be interpreted in a way that makes the law’s purpose meaningless. In other words, the exceptions shouldn’t be seen as allowing illegal behavior that hurts the company’s stock market position, market integrity, and investor confidence. This is because the 2019 Amendments explain what a “legitimate purpose” is.

Regulation 4(1) says that UPSI can’t be used for insider trading: The 2019 Amendments make this rule even stricter because they think that UPSI is behind insider transactions.

Like Regulation 3(1), Regulation 4(1) has exceptions that allow insiders to prove they are not guilty.

Regulation 4(1)(iii) lets transactions happen if they have to happen because of an obligation to do so. This is another example of a conditional exemption, since it only applies to real transactions that are done for legal reasons and not to make money at the expense of outside investors.



Throughout the pertinent time periods, Coinbase was continuously one of the largest cryptocurrency exchanges in the world. Customers of Coinbase can use their online user accounts to buy, trade, and sell a wide range of cryptocurrencies and other digital assets. When Coinbase said it would list a certain cryptocurrency, the market value of that cryptocurrency often went up by a lot.[16] Coinbase would add new cryptocurrencies that could be traded on its platform all the time. Because of this, Coinbase had a strict policy about keeping the information above secret, and its employees were not allowed to share it in any way, including giving a “tip” to anyone who might trade based on the information.


ISHAN WAHI misappropriated Coinbase confidential information by tipping his brother, NIKHIL WAHI, or his friend and associate, SAMEER RAMANI, on at least 14 occasions between June 2021 and April 2022 so they could place profitable trades in those crypto assets. NIKHIL WAHI and RAMANI utilized accounts at centralized exchanges maintained in the names of others to disguise their crypto asset purchases before Coinbase listing announcements. They moved monies, crypto assets, and scheme profits via many anonymous Ethereum blockchain wallets. NIKHIL WAHI and RAMANI developed and utilized new Ethereum blockchain wallets to hide their participation.


U.S. Attorney Damian Williams.

“Today’s charges remind us that Web3 is not a law-free zone,”[18]

. Last month, I told everyone about the first case of insider trading using NFTs. This month, it’s cryptocurrency marketplaces. Our message is clear: fraud on the blockchain is also fraud on Wall Street.

FBI Assistant Director Michael J. Driscoll said,

“The charges are still insider trading, even if they involve a crypto exchange.”


Insider trading remains a matter of controversy between economists who believe it should be tolerated and regulators who object to the unfairness of insiders exploiting information gaps in businesses and capital markets.[19]

Given these problems, the article advises permitting insider trading and only regulating it in extreme situations, such as a breach of fiduciary duty. A simpler solution may be better for financial markets and less likely to generate privacy concerns[20]. The article addresses the benefits and drawbacks of information trading. A distinction in legislation would capture some of the capital market efficiency of insider trading. Declaring insider trading illegal has failed both economically and politically. Specific cases of insider trading that are so devastating that the capital market cannot resolve them may need a different solution.[21]

[1] Prateek Bhattacharya, India’s Insider Trading Regime: How Connected Are You? 16 N.Y.U. J.L. & Bus. 1 (2019). [Accessed 15 October 2022].

[2] Ibid

[3] Anuradha Ghosh, The Need to Legalize and Regulate Insider Trading – An Analysis, 9 Christ U. L.J. 49 (2020). [Accessed 12 October 2022].

[4] Ibid

[5] n.d. [online] Available at: data/commondocs/may-2019/ HistoryReportl948_p.pdf [Accessed 9 October 2022].

[6] n.d. [online] Available at: user-upload/pdfs/Research%20Papers/InsiderTradingRegulations – A Primer.pdf.  [Accessed 9 October 2022].


[8] Rakesh Agarwal v. SEBI, (2004) 1 CompLJ 193

[9] Cady, Roberts & Co., 40 S.E.C. 907 (1961).

[10] Chiarella, 445 U.S. at 224.

[11] Dirks v. SEC, 463 U.S. 646 (1983).

[12] Supra Note 1

[13] Supra Note 1

[14] n.d. [online] Available at: [Accessed 16 October 2022].

[15] 2022. [online] Available at: [Accessed 16 October 2022].

[16] Ibid

[17] Ibid

[18] Ibid

[19] Anuradha Ghosh, The Need to Legalize and Regulate Insider Trading – An Analysis, 9 Christ U. L.J. 49 (2020). [Accessed 16 October 2022].

[20] Ibid

[21] Ibid

Author: Nirmiti Ratnakar

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