Skip to content

Capital Market and Securities Laws · Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market

Insider Trading Concepts and Link to Unfair Trade Practices

Updated 11 October 2026 · Fact-checked

Insider trading is dealing in listed securities, or communicating or recommending such dealing, on the basis of unpublished price sensitive information (UPSI) by an insider. The SEBI Act, 1992 bans it in section 12A and penalises it under section 15G. To answer questions, state the provision, apply it to the facts, and conclude.

Understand Insider Trading Concepts

Securities markets work on trust. Every investor should trade on the same public information. If one person knows something that will move the price and others do not, the market is not fair. That unfair advantage is the core of insider trading.

The key term is unpublished price sensitive information (UPSI). It is information about a listed company or its securities that is not yet public and that, once public, would be likely to affect the price materially. Think of an unannounced merger, a surprise dividend decision or results not yet released. The detailed definition sits in SEBI's insider trading regulations, so give that definition in your own words.

An insider is a person who has access to UPSI, such as a director, an employee or a connected person. Section 15G of the SEBI Act covers three acts by an insider: (i) dealing in securities of a listed body corporate, on his own behalf or for another, on the basis of UPSI; (ii) communicating UPSI to any person, with or without a request, except in the ordinary course of business or as required by law; (iii) counselling or procuring another person to deal in securities on the basis of UPSI.

Now the link to unfair trade practices. Section 12A of the SEBI Act is the common prohibition. Clauses (a) to (c) deal with manipulative and deceptive devices, schemes to defraud, and acts operating as fraud or deceit. Clause (d) says no person shall engage in insider trading. Clause (e) bars dealing in securities while in possession of material or non-public information, or communicating it, in contravention of the Act, rules or regulations. So insider trading is treated as a market abuse alongside fraud.

The difference from market manipulation is simple. Manipulation distorts the price or the appearance of trading, for example by artificial trades. Insider trading exploits information that others do not have. Penalties differ too: section 15G for insider trading and section 15HA for fraudulent and unfair trade practices.

Key rules to remember

Prohibition on insider trading
Section 12A(d): no person shall directly or indirectly engage in insider trading
Clause (e) also bars dealing while in possession of material or non-public information, or communicating it, in contravention of the Act, rules or regulations.
Three acts under section 15G
Dealing on the basis of UPSI + Communicating UPSI + Counselling or procuring dealing on the basis of UPSI
The section applies to an insider and to securities of a body corporate listed on a stock exchange. Communication is exempt if in the ordinary course of business or required by law.
Penalty for insider trading (section 15G)
Not less than ₹10 lakh; up to ₹25 crore or 3 × profits made, whichever is higher
The minimum is fixed at ₹10 lakh. The upper limit is the higher of the two amounts.
Penalty for fraudulent and unfair trade practices (section 15HA)
Not less than ₹5 lakh; up to ₹25 crore or 3 × profits made, whichever is higher
Do not mix the minimum amounts of sections 15G and 15HA.
SEBI's function
Section 11(2)(g): prohibiting insider trading in securities
Section 11(1) makes it SEBI's duty to protect investors and regulate the market.

How to solve Insider Trading Concepts questions

Use this method for any question on insider trading, whether theory or case-based.

  1. 1Identify the issue: is it insider trading, market manipulation, or both?
  2. 2State the provision: section 12A (prohibition) and section 15G (penalty), with the relevant clause.
  3. 3Test whether the information is UPSI: unpublished, price sensitive, relating to a listed company or its securities.
  4. 4Test whether the person is an insider or has access to UPSI, for example a director, employee or connected person.
  5. 5Identify the act: dealing, communicating, or counselling or procuring. Check the exceptions for ordinary course of business or requirement of law.
  6. 6Check that the securities are of a listed body corporate.
  7. 7State the consequence: penalty under section 15G, plus SEBI's powers such as directions under section 11 or an order under section 11D.
  8. 8Write a clear conclusion in one line.

Quickest way: Four-question check

When to use it: Use it for short case-based questions where time is tight.

  1. Is the information unpublished and price sensitive?
  2. Is the person an insider with access to it?
  3. Did he deal, communicate, or counsel or procure dealing?
  4. Are the securities listed? If all four are yes, cite sections 12A(d) and 15G and state the penalty range.

Common mistakes in Insider Trading Concepts

  • Treating insider trading and market manipulation as the same thing.

    Both fall under section 12A and both are market abuse.

    Fix: Remember: insider trading exploits secret information; manipulation distorts price or trading appearance.

  • Saying insider trading means only buying or selling.

    Students recall only the word 'trading'.

    Fix: Section 15G also covers communicating UPSI and counselling or procuring others to deal.

  • Mixing up the minimum penalties of sections 15G and 15HA.

    Both have the same upper limit of ₹25 crore or 3 times profits.

    Fix: Learn: 15G minimum ₹10 lakh; 15HA minimum ₹5 lakh.

  • Ignoring the exception for communication in the ordinary course of business or under law.

    Students assume any sharing of UPSI is an offence.

    Fix: Always check the exception before concluding.

  • Forgetting that securities must be of a listed company.

    Facts often mention a company without saying whether it is listed.

    Fix: State the listing status in your analysis.

  • Writing 'upper limit is ₹25 crore' only.

    Students skip the profit-linked limb.

    Fix: Write: ₹25 crore or three times the profits, whichever is higher.

Worked examples

Example 1

Rohit is the finance head of Sundaram Textiles Ltd, a listed company. He learns that the board will announce a very high dividend next week, which is not public. He buys shares of the company the same day. Is this insider trading? What is the penalty?

Show the solution
  1. Provision: section 12A(d) prohibits insider trading; section 15G penalises an insider who deals on the basis of UPSI.
  2. Information: the dividend decision is unpublished and likely to affect the price, so it is UPSI.
  3. Person: Rohit is a finance head with access, so he is an insider.
  4. Act: he dealt in securities of a listed company on the basis of UPSI.
  5. Penalty: not less than ₹10 lakh, up to ₹25 crore or three times the profits, whichever is higher.

Answer: Yes. Rohit has committed insider trading and is liable to a penalty under section 15G of not less than ₹10 lakh and up to ₹25 crore or three times the profit, whichever is higher.

Example 2

Distinguish insider trading from market manipulation with reference to the SEBI Act, 1992.

Show the solution
  1. Common ground: both are prohibited by section 12A of the SEBI Act.
  2. Insider trading: section 12A(d) and (e); dealing or communicating on the basis of UPSI; penalty under section 15G, minimum ₹10 lakh.
  3. Manipulation: section 12A(a) to (c); manipulative or deceptive devices, fraud or deceit; penalty under section 15HA for fraudulent and unfair trade practices, minimum ₹5 lakh.
  4. Core difference: insider trading depends on unequal access to information; manipulation depends on distorting price or trading appearance.
  5. Upper limit for both: ₹25 crore or three times the profits, whichever is higher.

Answer: Insider trading abuses secret price sensitive information and is penalised under section 15G; market manipulation uses deceptive devices or fraud and is penalised under section 15HA. Both are prohibited by section 12A.

Exam tips

  • Quote section 12A(d), 12A(e) and 15G together in every insider trading answer.
  • Learn the penalty numbers exactly, including the 'whichever is higher' wording.
  • In case questions, check each element in order: UPSI, insider, act, listed securities.
  • For distinction questions, use two columns of points in your written answer: basis, provision, penalty, example.
  • End every answer with a one-line conclusion naming the penalty section.

Practice questions from Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market

Insider Trading Concepts in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Insider Trading Concepts: frequently asked questions

What is unpublished price sensitive information?

It is information about a listed company or its securities that is not public and, once public, would be likely to affect the price materially. Examples are unannounced results, mergers or dividend decisions. Give the exact definition from SEBI's insider trading regulations in your own words.

How is insider trading related to PFUTP?

Both are market abuse prohibited by section 12A of the SEBI Act. Insider trading is covered in clauses (d) and (e), and fraud and deception in clauses (a) to (c). The penalties are in sections 15G and 15HA.

What is the difference between insider trading and market manipulation?

Insider trading uses non-public price sensitive information. Market manipulation creates a false or misleading picture of price or trading. The penalty minimums also differ: ₹10 lakh and ₹5 lakh.

Is communicating UPSI an offence even if I do not trade?

Yes. Under section 15G, an insider who communicates UPSI to any person, with or without a request, is liable, unless it is in the ordinary course of business or required by law.