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Issues and Challenges relating to the Trading

Plan under the SEBI (Prohibition of Insider
Trading) Regulations, 2015
By
Name of the student: S. Vishnu Ameya
Roll No.: 18 LLB 090
Semester: 8th Semester
Name of the Course: 5 year B.A. LLB Course
Subject: Corporate Law-II
Name of the faculty: Prof. Dayananda Murthy

DAMODARAM SANJIVAYYA NATIONAL LAW

UNIVERSITY NYAYAPRASTHA, SABBAVARAM,
VISAKHAPATNAM-531035 ANDHRA PRADESH
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Acknowledgement
I would like express my heartfelt gratitude to Prof. Dayananda Murthy sir, for allotting me
the topic “Issues and Challenges relating to the Trading Plan under the SEBI (Prohibition of
Insider Trading) Regulations, 2015”, working on this topic helped me understand the nuances
of PIT and Trading plans and its impact on Corporate Governance.
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Table of Contents

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
04
2. Historical Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05
3. The transition from 1992 to 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . 06
4. Analysis of the changes made by the Amendment . . . . . . . . . . . . . . 06
5. Sondhi Committee recommendations on Trading Plans . . . . . . . . . 07
6. Regulations Globally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7. Fundamentals of a Trading Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8. Potential Drawbacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9. Case-Laws and SEBI guidance notes in this regard . . . . . . . . . . . . . 14
10. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
11.References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
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1. Introduction
The stock exchange is an important part of each country's capital market. SEBI (Securities
and Exchange Board of India) is the regulator of India's stock exchanges and commodities
markets in India. It governs a number of economic variables and presents a picture of the
economy. The state of a country's economy. Examples include whether or not the economy is
flourishing. Insider trading is defined as the act of a director or other senior management staff
internally subscribing, buying, selling, or dealing in securities. It may, for example, include
the manipulation of private information, secret to the corporation and important for stock
market pricing. Because to the nature of this material, it is not accessible to the general
public. It might lead to unwarranted advantages or profits via deals made. A Trading Plan is
one such mechanism which was introduced by the SEBI in order to combat Insider Trading
on one hand and on the other hand, provide an opportunity to the Insiders to trade
legitimately in the securities of the company after making certain disclosures and after
obtaining the consent of the Compliance Officer of the company.

Regulation 2(1)(g) of SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT) defines
the term “ 'Insider' which includes any connected person or any person who possess access
to unpublished price sensitive information. The use of the word 'includes' makes the above
definition as inclusive, thus, something more can come under it.”

Regulation 2(1) of the SEBI (Prohibition of Insider Trading) Regulations, 2015 states the
meaning of Unpublished Price Sensitive Information (hereinafter "UPSI") as “any
information that relates to the financial results of the company; the intended declaration of
interim and final dividend; issue of shares by way of public rights, bonus etc.; any major
expansion plans or execution of new projects; amalgamations, mergers and takeovers;
disposal of the whole or substantially the whole of the undertaking; such other information
as may affect the earnings of the company in a direct or indirect way and which is unknown
or not published for general information, but the same if published or made known would
have an effect on the price of the securities materially in the market.”
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2. Historical Background
Insider trading was first recorded in the pre-independence period in the 1940s, resulting in a
vacuum in which the necessity for a restriction on the unethical use of privileged knowledge
became apparent. As a consequence, when the Companies Act of 1956 was established, the
addition of Sections 307 and 308 alleviated these worries to some degree. 1
These
requirements required the corporation to keep a registry of its members and specifically
stated that the directors must disclose their shareholdings. Similarly, at the time, the Listing
Agreements of stock exchanges required publication of quarterly unaudited accounts as well
as annual audited accounts, notification of a dividend or rights share issue, immediate
publication of any change in the company's composition or capital structure, notification of
takeover bids exceeding 5% in the target company, and notification of institutional investor
sales of holdings.2 This was done in order to increase company openness and reduce instances
of privileged information misuse.

The issue of insider trading, on the other hand, was thoroughly examined in the Sachar
Committee's report of 1978, which advised that appropriate reforms to company law be made
to meet these necessities. Despite the fact that establishing an insider transaction might be
challenging, the committee believes that the threat can be mitigated by publishing unaudited
business accounts on a half-yearly basis to keep interested stakeholders informed about the
firm's operations. The Sachar Committee went on to say that the insider should be held
legally responsible to the aggrieved parties, including the firm, for restoration of illegitimate
gains. As a result, the study attempted to maximise information sharing in order to address
insider trading issues. In 1984, another committee led by G.S. Patel was formed in order to
shift the emphasis of the legislation toward a more severe control. The Patel Committee
proposed that insider trading be made a criminal and cognizable offence, in addition to
enacting specific laws. The Patel Committee's recommendations were essentially reaffirmed
in the 1988 report of the Abid Hussain Committee.

In 1978, the first steps were made to curtail the practise of insider trading. In its findings, the
Sachar Committee first reviewed the fact that the board of directors, promoters, accountants,
and other members of the board of directors are all women. Members of the inner circle of

1
Dina Wadia, International Insider Trading 583 (1st ed., 2005).
2
Dina Wadia, International Insider Trading 583 (1st ed., 2005).
 Page |6

the organization's decision-making body have access to private information, which may
potentially put the firm at risk, i.e, information that is price sensitive.

The Patel Committee was established in 1986. It was a high-powered group that had been
designated as a task force watchdog over the stock exchange's operations and, as a result,
offers recommendations to the Ministry of Corporate Affairs of Govt. of India. After careful
consideration, the Patel committee issued the following recommendation:

 such as enacting legislation to make insider trading illegal,

 Moreover, outlining the grounds behind it.
 They created laws that, among other things, that discussed insider trading and price
sensitivity.
 Emphasis on the company's fiduciary duty with its customers which was built on trust
and confidence

The recommendations of this committee lead to changes in the Securities Contracts

Regulations Act and ultimately culminated into the SEBI (Prohibition of Insider Trading)
Regulations, 1992.

3. The transition from 1992 to 2018

SEBI has, vide a notification dated December 31, 2018, 3
The Insider Trading Regulations
were simplified by separating the obligations of listed firms and intermediaries. The
amendment is primarily concerned with focuses on defining responsibilities and offering
mechanisms for improved performance Regulations are being implemented. These
modifications were done in order to have an impact to the Fair Market Committee's approved
suggestions make broad-based adjustments to the rules, on a wide range of issues indicating
the appropriate reasons for sharing unpublished information, for example tracking the transit
of such information, price sensitive information a comprehensive list of authorised
individuals, and the establishment of a procedure for how and when individuals are 'within'
critical transactions, etc.

4. Analysis of the changes made by the Amendment

3
SEBI, Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations,
2018. Accessed at: < https://www.sebi.gov.in/legal/regulations/dec-2018/securities-and-exchange-board-of-
india-prohibition-of-insider-trading-amendment-regulations-2018-dated-december-31-2018_41570.html>.
 Page |7

 Insertion of Regulation 3(2A): legitimate purposes" as a part of "Codes of Fair

Disclosure and Conduct".4
Analysis: The company loses custody of a UPSI once it is shared for lawful reasons,
use of the data in new ways by people who come into contact with it possession. If
such information is available generally. It is becoming more difficult to construct
the company's relationship with the information's receiver. This helps in prevention of
abuse of Insider Trading.
 Amendment to Regulation 5: Onus is put on the Compliance Officer to assess
whether the plan would have any potential for violation of these regulations and
shall be entitled to seek such express undertakings.5
Analysis: Trading window rules and limits on counter transaction will not apply if the
Trading that is carried out in compliance with the trading plan that has been
approved. Implementation of Trading Plan remained un-attended, on the other hand
relaxations to the persons declaring Trading plan has been provided.

5. Sondhi Committee recommendations on Trading Plans

The Sondhi Committee formulated in 2013, was responsible in bringing up the aspect of
Trading Plans into the PIT Regulations to provide an opportunity to the Insiders to
legitimately trade in securities without abusing the law. The key recommendations of the
Committee are setout below:

 The Committee noted, due to the strict ban on trading while in possession of UPSI, it
is feasible that some individuals, notably those in senior management and promoters,
may be in continuous possession of one or more UPSI, leaving them unable to trade in
securities throughout the year. This is because such individuals may be engaged in
some decision-making at any one moment and have access to sensitive information
that may impact price discovery if such information became widely accessible. It's
critical to strike a balance between the requirement to keep the restriction on trading
in securities while in possession of UPSI and the need to establish a system that

4
SEBI, Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations,
2018. Accessed at: < https://www.sebi.gov.in/legal/regulations/dec-2018/securities-and-exchange-board-of-
india-prohibition-of-insider-trading-amendment-regulations-2018-dated-december-31-2018_41570.html>.
5
REPORT OF THE HIGH LEVEL COMMITTEE TO REVIEW THE SEBI (PROHIBITION OF INSIDER
TRADING) REGULATIONS, 1992. Accessed at: <
https://www.sebi.gov.in/sebi_data/attachdocs/1386758945803.pdf>.
 Page |8

allows compliance-conscious insiders to set up a compliant method for trading in

securities while insiders.6
1. The Committee also found that there are countries that have not warmed up to the
notion of a trading plan, and there are jurisdictions where the concept has been around
for a while and changes have been made based on practical knowledge of how they
operate. The Committee considers that the concept has promise, and that with proper
protections in place, it is time to put it to the test in India in order to establish a
framework for compliance trading. Such an experiment might be used for compliance
trading in the context of promoter creeping acquisitions (as allowed by the Takeover
Regulations) or the monetization of securities holdings by entrepreneurs whose firms
have been public.
 The notion of a trading strategy is designed for those who have UPSI all of the time.
As a result, if the insider does not have any UPSI, it will be impossible to devise a
strategy. Instead, the trading plan regulatory framework would allow an insider to
formulate the plan in advance in order to execute trades at a later date, by which time
they would be in possession of new UPSI, but the UPSI that he would have had when
formulating the plan would have become generally available. The presence of fresh
UPSI that did not exist when the trading strategy was developed should not prevent
transactions from being completed as long as the protections are followed. The
Committee took notice of material from the United States about the alleged misuse of
the trading plan, in which transactions are pre-determined but the broad availability of
UPSI is timed to benefit the insider. As a result, the Committee ruled that the trading
plan would not afford total immunity from an examination into whether such timing
manipulation was utilised to violate the insider trading ban.
 The main characteristics of the protections are that the trading strategy may only be
executed after it has been publicly publicised for at least six months. There shall be no
trading between the twentieth trading day before to the final trading day of the
financial period for which results are to be revealed and the third trading day after the
results are disclosed in any trading plan. Trading plans must be in place for at least a
year, no two trading plans should overlap, and a trading plan must be reviewed and
authorised by the company's compliance officer before being publicly publicised and

6
REPORT OF THE HIGH LEVEL COMMITTEE TO REVIEW THE SEBI (PROHIBITION OF INSIDER
TRADING) REGULATIONS, 1992. Accessed at: <
https://www.sebi.gov.in/sebi_data/attachdocs/1386758945803.pdf>.
 Page |9

executed. Some members have voiced concerns about the onerous nature of such
restrictions, believing that the notion of a trading plan would not appeal to a large
number of people. The recommendation is to reduce the cooling off time for starting a
trading strategy to 90 days. The Committee is aware, however, that this is a first-of-
its-kind experiment being conducted in India. Even in nations where the notion has
been around for a long time, actual evidence suggests to misuse, with the UPSI being
made widely accessible at times that fit the trading plans of those in charge. The
notion, it is believed, should be presented with proper protections and care made to
guarantee that widespread misuse does not result in this key reform measure being
withdrawn in the near future as a result of abuse.7
 The amount of the transactions to be executed or the quantity of securities to be
exchanged may be specified in a trading plan. It should also specify the type of the
transaction as well as the time intervals or dates on which the trades are to be
completed. If information can be fairly inferred that the UPSI in possession of the
insider at the time of plan formulation is not yet widely accessible, the compliance
officer has the authority to postpone the start of the trading plan. However, once a
trading strategy has been established, it cannot be cancelled and must be followed.
This is necessary to exclude the possibility of abusing the system by timing the
release of previously unreleased information.
 A public announcement of every trading plan is scheduled to make it known to the
market at large that such a planned series of transactions will be executed, allowing
the public to make informed decisions regarding trades in the same assets. One
Committee member believes the trading plan should not be reported to the stock
exchange at all, while another believes it should be published if the value of the
transactions contemplated in the plan exceeds a substantial threshold. First, the
Committee believes that an insider would only use a trading plan for substantial
transactions, and that if he did not require a material preprogrammed compliance
trading plan, he would use the pre-clearance method, as is the case under the PIT
Regulations, 1992. Second, the Committee believes that stock market disclosure is an
essential element of transparency that would be beneficial in India. The Committee
believes that requiring a public disclosure is the best way to ensure that the market is

7
REPORT OF THE HIGH LEVEL COMMITTEE TO REVIEW THE SEBI (PROHIBITION OF INSIDER
TRADING) REGULATIONS, 1992. Accessed at: <
https://www.sebi.gov.in/sebi_data/attachdocs/1386758945803.pdf>.
 P a g e | 10

mature enough to absorb news about planned transactions according to a trading

strategy and draw appropriate inferences.

6. Regulations Globally
There are several discrepancies in the legislation governing the prohibition of insider trading
methods in various nations across the globe. The quality of corporate reporting, information
intermediation, and information management are all important factors to consider. Today's
trading restrictions are in place all around the globe. The Securities Exchange Act of 1934
governs the financial markets in the United States, it was the first to establish an insider
trading legislation that placed restrictions on insider trading, the Securities and Exchange
Commission (hereafter referred to as "SEC") is a federal agency that Insider trading is not
tolerated by the United States Securities and Exchange Commission (the "SEC"). The
Detention and fines will be imposed on anybody found guilty of insider trading draconian
penalties. From then on, the majority of developed economies. In addition, a few emerging
economies have investigated and limited insider trading. Insider trading has been annihilated,
and it has shown to be a highlight one of the most important goals of market regulators.

Insider trading rules were originally established in the United States in 1934, and it was the
first nation to prosecute an insider trading case in 1961; however, it took 27 years to publicise
the case. The first insider trading case to go to trial. Malaysia took 23 years to become
independent disclose their first insider prosecution exchange among the different countries.
Insider trading has encircled Canada and France. During the 1970s, the prosecution was
tracked down and accounted for.

As things were, in the 1970s. Insiders have been arraigned in the United Kingdom and
Germany cases were exchanged within a year after their insider swapping. Despite the fact
that Sweden and Canada took 19 and 10 years, respectively, individually, they spent years in
the first prosecution of insider trading.
 P a g e | 11

While India tightened its insider exchanging restrictions in 1992, the United States did not. In
1998, it was disclosed that insider trading was being prosecuted, and in 1999, it was reported
that insider trading was being prosecuted. In six years of constraining such directions, that is.
By the year 2000, 87 countries had signed the treaty approved insider trading legislation, and
38 have arraigned at least one insider.8

7. Fundamentals of a Trading Plan

Under Regulation 5 of the Prohibition of Insider Trading Regulations, 2018; every Insider as
defined above under Regulation 2(1) shall be entitled to frame a Trading Plan and present it
to the Compliance Officer of the Company for approval and disclose it to public at large. The
Compliance Officer is under an obligation to review and assess the Trading Plan to ascertain
any possible violation of the Insider Trading Prohibition Regulations.

Conditions attached to a Trading Plan:

 UPSI is not in posession from formulation to implementation.

 The minimum duration of the Trading Plan is 12 months and there is no overlap
between two Trading Plans.
 The Trading Plan must specify the number of trades, number of securities and dates.
 It shall not be used as a platform for market abuse.
 No Trading shall be carried out for a reasonable period around declaration of financial
results.
 A Plan once approved, shall not be revoked.
 Compliance Officer must review and notify Stock Exchanges.
 Commencement of Trading not earlier than 6 months from the date of approval of the
Trading Plan.

The novel concept of Trading Plan was first introduced in the PIT Regulations, 2015. The
unique notion of trading plan was proposed in an effort to allow insiders, such as senior
management, who are continuously in possession of UPSI, to trade in securities. It provides a
safe haven for insiders to pre-arrange the selling of shares in accordance with a pre-
determined trading strategy. The Regulations' idea of a trading strategy is comparable to

8
Bushman R., Joseph P. and Smith, What determines corporate transparency?, 42(2) J. OF ACCOUNTING
RES. 235 (2004).
 P a g e | 12

Securities Exchange Commission Rule 10b5-1 in the United States. 9 However, India has put
in place appropriate protections to prevent such trade plans from being abused.

A trading plan is a deal that is now being planned and will be carried out in the future. As a
result, regulations necessitate the creation of a trading plan that specifies the amount of the
deal to be executed, as well as the number and kind of assets to be exchanged. 10
It must also
specify the time periods or dates on which trades will be carried out.

The compliance officer has been given the responsibility of approving, implementing, and
regulating trading strategies. Before accepting the trading strategy, the compliance officer
must analyse it to determine whether or not it violates the Regulations. He has the authority
to take any essential undertakings for the plan's approval and execution.

A trade strategy must also be made public before it can be implemented. Following approval,
the compliance officer must inform the stock exchanges where the securities are listed of the
formed trading strategy. Because trading plans are an exception to the norm of insider
trading, public disclosure guarantees that individuals are informed about them and the
market's integrity is preserved.

The idea behind a trading plan is to allow those who have continual access to UPSI to
execute trades. As a consequence, it's likely that the people who create a plan have access to
specific UPSI at the time of creation. As a result, a minimum of six months must pass
between the public announcement of a plan and its implementation. This time lag serves as a
cooling-off period, ensuring that any UPSI obtained from the insider while constructing a
trading strategy is made publicly accessible. To support this goal, the Regulations provide
that the compliance officer may suspend the execution of a trading plan for a period of time
until any UPSI who had knowledge of the insider at the time the trading plan was formulated
and had not yet become widely accessible does so. The legislative note explains, however,
that the 6-month term is just a statutory cool-off period, and that the insider would not be
immune for any actions taken if the insider had the same UPSI both at the time of the plan's
creation and execution. This mechanism for delaying implementation may, in certain
situations, result in an excessive delay in the execution of the plan, since some projects take
years to finish before they are made public. Delaying the execution of the plan until that time
may make it outdated.

9
Executives' Good Luck in Trading Own Stock
http://www.wsj.com/articles/SB10000872396390444100404577641463717344178.
10
Regulation 5
 P a g e | 13

Even if there is an exception, formulating a trading strategy does not guarantee an insider
ultimate protection if he engages in market abuse techniques. Trading is also prohibited
between the 20th day previous to and two days after the announcement of financial results,
according to the rule.

To guarantee rigorous conformity with the trade plan, the Regulations provide that once
authorised, the trade plan is irreversible and must be executed without exception.
Furthermore, no deal may be completed outside of the trading plan's parameters.

The Regulations ban the creation of overlapping trade plans. 11 Senior management that has
been trained in the notion of trading plans is capable of timing the release of UPSI in order to
take benefit of a trading plan. Multiple trading plans would result in insider planning
disclosure in order to satisfy one of the trading plans, resulting in insider trading disguised as
a trading plan. A trading strategy also includes trading for a period of at least twelve months.
This assures that trading plans are not created for short periods of time, making the defence
of a time gap between plan creation and actual transaction ineffective.

8. Potential Drawbacks
The provision of a trading plan under Regulation 5 that was implemented in 2015 to allow
top management, such as promoters and other permanent insiders, to properly trade without
breaching insider trading prohibitions, has to be reconsidered. The idea was controversial
because of various constraints in the SEBI rules for implementing it. The Amendment fails to
satisfy corporate India's concerns. Nonetheless, the Amendment clarifies the situation by
including a proviso clause in regulation 5(3) that states that pre-clearance of trade, adherence
to trading window standards, and limits on contra trade may not apply to trading done in
accordance with the authorised trading plan.

Insider trading activity can be readily detected via the trading window, however there is
much more intricate and exploitative insider trading behaviour that this provision cannot
detect. To look into an insider trading case in which there are intermediaries and employees
of an investment bank or broker wish to elevate the specifics of a complicated deal owing to
their opinion of insider trading risk, beyond the scope of institutional views on the legality of
the overall structure. The approach to a collaborating criminal wanting to help in adducing
evidence as an informant is another aspect of the rule that has to be examined. A person who

11
Regulation 5, SEBI (Prohibition of Insider Trading) Regulations, 2018.
 P a g e | 14

meets the qualifications outlined in Regulation 5 may resolve their dispute in confidence. 12
This clause is sure to spark a new round of heated debate on the ethical ramifications of such
activities.

9. Case-Laws and SEBI guidance notes in this regard

In the matter of Biocon Ltd. and Anr.,13 Biocon Ltd was a listed company and SEBI
observed that after the public announcement was made, the scrip witnessed rise of 5.6% in
the closing price on the next day post the announcement. SEBI initiated an investigation to
ascertain whether certain persons/entities have traded in the scrip of Biocon when they were
in possession of UPSI. The defence putforth by them was that the trading had taken place
during the approved Trading Plan. The plea putforth by the Noticees was that certain insiders
may have UPSI at all times of the year. They may still trade, however, since their trading
strategy has been authorised. This exemplifies a scenario in which UPSI exists but the trade
window is open or closed. If the trading window remains closed throughout the year due to
the presence of permanent insiders, the idea of a "trading strategy" becomes obsolete.
Between the non-individual insider and market participants, information symmetry is
maintained. The third condition pertains to transactions made in accordance with a trading
strategy. The issue of information asymmetry does not emerge since the trading strategy is a
pre-determined plan/action. As a result, the Noticee's reason must comply to the underlying
premise on which the PIT Regulations were created, namely, maintaining a level playing
field in terms of access to material information between insiders and market participants, i.e.,
information symmetry.

In the Matter of Dynamatic Technologies Limited and Others, 14 SEBI investigation

revealed that A sum of Rs. 3,83,16,230.73, being the notional loss avoided on account of
trades carried out during the UPSI Period, shall be impounded from Udayant Malhoutra with
immediate effect. SEBI found that Regulation 5 is an exception Regulation 4. Regulation 4
prohibits Insider Trading when in posession of UPSI, and Regulation 5 is an exception to the
said rule. SEBI found no violation of PIT Regulations as trading was done in compliance
with approved Trading Plan under Regulation 5.

12
Reg. 5 of the SEBI (Settlement Proceedings) Regulations, 2018.
13
In the matter of Biocon Ltd. and Anr, 2021 SCC OnLine SEBI 170.
14
In the Matter of Dynamatic Technologies Limited and Others, 2020 SCC OnLine SEBI 734.
 P a g e | 15

In the matter of Hawkins Cookers Ltd. (HCL), 15 the facts were such that, an Independent
Director wanted to sell Equity Shares of the Company. However, the PIT Regulations
mandated that while trading under a Trading Plan, the Insider shall not be in posession of any
UPSI. It was felt that the Director was attending Board Meetings and is someone who would
perpetually be in posession of UPSI.

The issue was whether the said director may submit a trading plan as required to trade in
shares above value of Rs. 20 Lakh in value and proceed with executing the same without
giving the said undertaking. The next issue was whether procedure should be followed by the
Company such that the Director may lawfully execute the trade.

The SEBI ruling was that Regulation 5, i.,e, Trading Plan is an exception to Regulation 4,
which allows an Insider to Trade in securities when in posession of UPSI as per approved
Trading Plan.

10. Conclusion and Suggestion

Economic crimes in India are difficult to identify, as shown by real convictions for insider
trading. In India, there are just a few occasions when an infraction has been proven and the
perpetrator has been successfully prosecuted. The total number of reported insider trading
instances suggests that there are certain gaps in the enforcement system. Strict insider trading
legislation necessitates rigorous enforcement mechanism. Our securities market regulator,
SEBI, is doing all it can to make this happen.

The SEBI is concerned about the fight against insider trading, as shown by the fact that action
performed in response to the recently amended Insider Trading Regulation.

On the matter, strong litigation is being pursued. The Securities and Exchange Board of India
(SEBI) has made many amendments to the Insider Trading Regulations.

To foster effective company governance, legislation was enacted in 2018. Corporate

governance is important. Insider trading regulations that are rigorous may guarantee this. The
drawbacks Insider trading's influence on corporate governance needs adjustments to the
current system.

Several incidents have been used to illustrate the need for legislation to address the issue.
There is a direct correlation. There is a link between excellent company governance and
15
In the matter of Hawkins Cookers Ltd. (HCL), SEBI’s Interpretive Letter dated 19th July, 2018 issued under
the SEBI (Informal Guidance) Scheme, 2003.
 P a g e | 16

insider trading prohibition. Companies that adhere to stringent corporate governance

guidelines will see lower costs. There have been instances of insider trading. The major cause
of insider trading is knowledge asymmetry. Insider trading is a kind of trading that puts a
company's insiders in a favourable position. When these situations arise, Insiders take undue
use of their position, which leads to company failure governance.

It has the potential to cause typical business communication to be misunderstood, as well as

increasing compliance costs. As a result, circulars issued by stock exchanges in conjunction
with SEBI are fraught with ambiguity. There are no stock exchanges in the United States
have any regulatory jurisdiction under any laws without an enabling act from now on. The
modification on this point was found to be ambiguous.

The amendment intends to provide the informants a framework to submit their information in
SEBI does not have access to sensitive information obtained from other sources. The data
should be reliable, and it should be reported to the SEBI division as a government entity. This
will assist the SEBI in successfully enforcing the insider trading regulations. The amendment
also considers technical advancements. Several large corporations, like as TATA Motors,
have been accused of leaking UPSI over WhatsApp before the public announcement, such as
BATA India Limited, HDFC Bank Limited, and others.

1. References
1. Kumud Malviya, A Critical Analysis of the Implication of Sebi (Prohibition of Insider
Trading) (Amendment) Regulations, 2018 on Corporate Governance in India, 12
RMLNLUJ (2020) 176.
2. NIKITA SNEHIL, SEBI rationalises Insider Trading Regulations, [2019] 102
taxmann.com 220 (Article).
3. JASKARAN SINGH SALUJA, Operation of Insider Trading in India: Is it still a
Corporate Opportunism?, [2020] 117 taxmann.com 653 (Article).