You don't have to be a director to be an "insider". A consultant, an auditor's articled clerk, even a spouse can be one — and the regulations presume you traded on what you knew.
Regulation 4 prohibits trading while in possession of UPSI; Regulation 3 prohibits communicating or procuring it. Possession — not use — is the test.
The SEBI (Prohibition of Insider Trading) Regulations, 2015 replaced the 1992 regime with a wider, stricter architecture. The philosophy is parity of information: nobody should profit from an informational head start that the market does not have. The regulations do this through three layers — who is caught (insiders and connected persons), what is prohibited (trading, communicating, procuring), and how listed companies must police it internally (codes of conduct, trading windows, pre-clearance, disclosures, the Structured Digital Database).
The uncomfortable feature for anyone senior in a listed company: once you possess UPSI, the regulations presume your trade was motivated by it. The burden shifts to you to fit within a narrow defence.
BOTTOM LINE
- Insider (Reg 2(1)(g)): anyone who is a connected person or is simply in possession of UPSI — however they got it.
- Prohibitions: Reg 3 — no communication or procurement of UPSI except for legitimate purposes; Reg 4 — no trading while in possession of UPSI.
- Company machinery: Code of Conduct (Reg 9), trading window closure, pre-clearance, 6-month contra-trade bar, disclosures over ₹10 lakh per quarter (Reg 7(2)), SDD (Reg 3(5)).
Who is an insider — and who is a connected person?
Governs this section: Regulations 2(1)(d) & 2(1)(g), PIT Regulations, 2015
An insider is any person who is (i) a connected person, or (ii) in possession of or having access to UPSI — regardless of how they came by it. Overhear a merger discussion in an airport lounge and you are an insider for that information.
A connected person is anyone associated with the company in the six months prior to the concerned act — directly or indirectly, in any capacity — in a way that allows or reasonably permits access to UPSI. The definition then deems a long list to be connected: immediate relatives of connected persons, holding/associate/subsidiary companies, intermediaries, bankers, legal counsel, auditors, officials of stock exchanges and clearing corporations, and more. For deemed connected persons, the burden is on them to show they did not have UPSI.
PRACTITIONER'S NOTE
The 6-month lookback trips people constantly. A consultant whose engagement ended in February is still a connected person for a trade in June. Resignation is not a reset button.
The two prohibitions
Governs this section: Regulations 3 & 4, PIT Regulations, 2015
- Communication / procurement (Reg 3): No insider shall communicate UPSI, and no person shall procure it, except for legitimate purposes, performance of duties or discharge of legal obligations. "Legitimate purposes" (sharing with auditors, advisers, bankers, deal counterparties in the ordinary course) must be defined in the company's Code of Fair Disclosure — and every recipient becomes an insider, to be notified and logged in the SDD.
- Trading (Reg 4): No insider shall trade in securities while in possession of UPSI. Possession, not use, is the trigger — a trader cannot argue the UPSI played no role. Limited defences exist: off-market transfers between insiders who both already hold the same UPSI (with advance intimation), block deals between such parties, statutorily compelled trades, bona fide exercise of options, automatic ESOP-style events, and trades under an approved trading plan (Reg 5).
Trading plans — the pre-commitment route
Governs this section: Regulation 5, PIT Regulations, 2015 (as amended in 2024)
Perpetual insiders (promoters, CXOs) can trade despite holding UPSI if they pre-commit through a trading plan approved by the compliance officer and disclosed to the exchanges. Following SEBI's 2024 rationalisation, the cool-off between disclosure and implementation is 120 days (down from six months), the blanket black-out around results was removed, and planners may set optional price limits (within ±20%). Once set, the plan must be implemented — it cannot be timed or abandoned to chase the market.
The company's internal machinery
Governs this section: Regulations 8, 9 & Schedule B, PIT Regulations, 2015
Every listed company must adopt a Code of Fair Disclosure (Reg 8) and a Code of Conduct (Reg 9) administered by the compliance officer, covering all designated persons (promoters, directors, KMP, employees with UPSI access, and their immediate relatives for trading rules). The Schedule B essentials:
- Trading window: closed when designated persons can reasonably be expected to possess UPSI — mandatorily from the end of every quarter until 48 hours after the declaration of financial results.
- Pre-clearance: trades above a company-set threshold need prior approval, executed within (typically) 7 days, with an undertaking of no UPSI possession.
- Contra-trade restriction: no opposite trade within 6 months of the earlier trade; profits from breaching this rule must be handed over ("disgorged") to SEBI's Investor Protection and Education Fund.
- Reporting violations: the company must report Code of Conduct breaches to the stock exchanges and collect amounts for remittance to the IPEF.
Disclosure obligations
Governs this section: Regulations 6 & 7, PIT Regulations, 2015
- Initial disclosure: every promoter, member of the promoter group, KMP and director discloses their holdings within 7 days of appointment / becoming a promoter.
- Continual disclosure (Reg 7(2)): promoters, promoter group, designated persons and directors must disclose to the company within 2 trading days every trade (or series of trades in a calendar quarter) whose value exceeds ₹10 lakh; the company passes it to the exchanges within 2 trading days of receipt.
Worked example
Mini-case — the CFO's relative and the quarter-end window
A listed company's quarter ends 30 June; results are scheduled for 28 July. The trading window closes 1 July for all designated persons. On 10 July, the CFO's spouse — an "immediate relative" under the Code — buys shares worth ₹14 lakh through her own broker. Three failures cascade: the trade occurred during window closure; it needed (and lacked) pre-clearance; and crossing ₹10 lakh it triggered a Reg 7(2) disclosure that never happened. The company must report the breach to the exchanges, recover the profit for the IPEF, and the couple face potential Section 15G adjudication — even if the spouse never actually saw the results. Possession is presumed inside the closed window; innocence must be proven, not assumed.
Common mistakes
- Thinking "insider" means only management. Anyone in possession of UPSI is an insider — advisers, bankers, relatives, even accidental recipients.
- Arguing the UPSI wasn't "used". Regulation 4 turns on possession while trading, not motive.
- Missing the 6-month lookback for connected persons after an engagement ends.
- Ignoring immediate relatives. Their trades count for window closure, pre-clearance, contra-trade and disclosure rules.
- Contra-trading within 6 months — including selling ESOP shares acquired opposite to a recent purchase.
- Late Reg 7(2) filings. The ₹10 lakh threshold is per calendar quarter, aggregated — not per trade.
Checklist
- Maintain a live list of designated persons and their immediate relatives; refresh on every role change.
- Close the trading window from quarter-end to 48 hours post-results — and on any other UPSI.
- Enforce pre-clearance thresholds and 7-day execution validity.
- Track contra-trades across 6-month windows; disgorge violative profits to the IPEF.
- Capture every UPSI share-out in the SDD with names and PANs.
- Calendar Reg 7(2) two-trading-day disclosures for trades crossing ₹10 lakh per quarter.
- Report Code of Conduct violations to the exchanges promptly.
FAQ
Can an insider ever legally trade? Yes — when not in possession of UPSI (open window, pre-cleared), or within a Reg 4 defence such as an approved trading plan or inter-se transfer between equally informed insiders.
Are relatives automatically liable for my trades? Immediate relatives are deemed connected persons; the burden is on them to show they had no UPSI. Compliance codes treat their trades as yours.
What is the contra-trade rule? No opposite transaction within 6 months of an earlier trade by a designated person; profits from breaches go to SEBI's Investor Protection and Education Fund.
When must the trading window reopen? No earlier than 48 hours after the UPSI (e.g. results) becomes generally available.
Is gifting shares "trading"? Trading is defined widely — subscribing, buying, selling, dealing or agreeing to do so. Gifts by insiders in possession of UPSI have attracted SEBI's attention; take advice before transferring.
Primary sources
- Regulations 2(1)(d), 2(1)(g), 3, 4, 5, 6, 7, 8, 9 & Schedules A–B, SEBI (Prohibition of Insider Trading) Regulations, 2015
- SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2024 — trading plan rationalisation
- SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2025 — UPSI expansion & SDD timelines
Disclaimer: This article is general information on a fast-changing area of securities law, current at the time of writing. It is not legal or professional advice. Verify the position against the live SEBI regulations and consult your compliance officer before trading or filing.