Capital Market and Securities Laws · Prohibition of Insider Trading

Code of Fair Disclosure and Code of Conduct under PIT Regulations

Updated 11 October 2026 · Fact-checked

The code of fair disclosure is a listed company's policy to publish UPSI promptly and fairly, so no one gets an unfair advantage. The code of conduct is the internal rulebook for designated persons, run by the compliance officer, with a structured digital database of UPSI recipients. Answer by stating the provision, applying it, then concluding.

Understand Code of Fair Disclosure and Code of Conduct

Insider trading is trading on unpublished price sensitive information (UPSI). Section 12A of the SEBI Act, 1992 bars any person from engaging in insider trading, and from dealing in securities while in possession of material or non-public information, or communicating it, in contravention of the Act, rules or regulations. The SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) turn this into working rules for companies.

There are two internal codes. The code of fair disclosure is about how a listed company shares UPSI. The aim is equal access: once information is price sensitive, it should reach the market quickly and evenly, not selectively. The code of conduct is about how people inside the company and intermediaries behave when they hold or may hold UPSI.

Principles of fair disclosure, in plain words (state them from your study material in this order of ideas):
- Promptly make public UPSI that would impact price discovery, as soon as credible and concrete information comes into being.
- Use uniform and universal disclosure, avoiding selective disclosure.
- Designate a senior officer as chief investor relations officer to deal with dissemination of information and disclosure.
- Respond promptly to market rumours spread through the media.
- Ensure that information shared with analysts and research personnel is not UPSI.
- Develop best practices for transcripts or records of meetings with analysts.
- Handle all UPSI on a need-to-know basis.

The code of conduct applies to the board of every listed company, intermediaries and fiduciaries. A senior officer, normally the compliance officer, administers it. Duties include: reporting to the board or its chairperson, overseeing compliance with the code, maintaining records, and supervising pre-clearance of trades of designated persons and the trading window. The code sets rules for designated persons, who are people identified by the company by role and function as likely to have access to UPSI. It also covers trading plans, pre-clearance, and disclosures.

The structured digital database is a record of the persons with whom UPSI is shared, including their names, details of the sharing and identity details such as PAN. The board or its authorised person must ensure it is maintained with adequate internal controls and checks, such as time stamping and an audit trail, so that the records are not tampered with. Check the exact retention period and the SEBI informant (whistle blower) reward provisions against your study material before the exam.

For penalties, section 15G of the SEBI Act, 1992 punishes an insider who deals on the basis of UPSI, communicates UPSI (except in the ordinary course of business or as required by law), or counsels or procures others to deal. The penalty is not less than ten lakh rupees but may extend to twenty-five crore rupees or three times the profits made out of insider trading, whichever is higher. Section 195 of the Companies Act, 2013 was omitted w.e.f. 9-2-2018, so do not cite it as a live insider trading provision.

Key rules to remember

Statutory prohibition: SEBI Act, 1992, s. 12A(d) and (e): no insider trading; no dealing while in possession of material or non-public information, or communicating it, in contravention of the law; Cite this as the base of the PIT Regulations.
Penalty for insider trading: SEBI Act, 1992, s. 15G: not less than ₹10 lakh; up to ₹25 crore or 3 × profits, whichever is higher; Applies to dealing on UPSI, communicating UPSI, or counselling or procuring others to deal.
Code of fair disclosure: Prompt public disclosure + uniform, non-selective disclosure + chief investor relations officer + need-to-know handling; Applies to every listed company, and the code must be published on its website.
Code of conduct: Board + compliance officer + designated persons + pre-clearance + trading window + structured digital database; Intermediaries and fiduciaries must also frame their own code.
Structured digital database: Names of UPSI recipients + sharing details + PAN or other identifier + time stamping and audit trail; Protects against tampering.
Cease and desist: SEBI Act, 1992, s. 11D: order to cease and desist after inquiry if a person has violated or is likely to violate; For a listed or to-be-listed public company, only if SEBI has reasonable grounds to believe it indulged in insider trading or market manipulation.

How to solve Code of Fair Disclosure and Code of Conduct questions

Use this method for any question on the fair disclosure code, code of conduct, compliance officer or database.

1Identify what is asked: fair disclosure, code of conduct, compliance officer, database, or penalty.
2State the source: s. 12A and s. 15G of the SEBI Act, 1992 and the PIT Regulations, 2015.
3Define the key term in one line, for example UPSI, designated person or compliance officer.
4List the rule points in your own words, in a short numbered list.
5Apply them to the facts given in the question, naming the person and the company.
6Check the penalty angle: who is an insider, what act was done, and what the s. 15G amount is.
7Conclude clearly: whether there is a breach, who is liable, and what the company should do.

Quickest way: Four-line answer frame

When to use it: Use when time is short, for 5-mark questions or when you cannot recall every detail.

Line 1: law and purpose, namely s. 12A and the PIT Regulations stop misuse of UPSI.
Line 2: the code involved, fair disclosure or conduct.
Line 3: two or three key points, for example the compliance officer, the database, equal access.
Line 4: conclusion or penalty under s. 15G.

Common mistakes in Code of Fair Disclosure and Code of Conduct

Mixing up the code of fair disclosure and the code of conduct.
Both are in the PIT Regulations and both deal with UPSI.
Fix: Remember: fair disclosure is about releasing information to the market; conduct is about people's trading and handling of information.
Citing section 195 of the Companies Act, 2013 as the insider trading prohibition.
Older notes still mention it.
Fix: Section 195 was omitted w.e.f. 9-2-2018. Cite s. 12A and s. 15G of the SEBI Act, 1992.
Stating the s. 15G penalty as a flat amount.
Students remember only the ₹25 crore figure.
Fix: Write: not less than ₹10 lakh, up to ₹25 crore or three times the profits, whichever is higher.
Treating the compliance officer as the decision maker on UPSI.
The title sounds powerful.
Fix: The officer administers the code and reports to the board or chairperson, and oversees pre-clearance and records.
Thinking the structured digital database is optional.
It is seen as a technical formality.
Fix: The board must ensure it is maintained with controls such as time stamping and an audit trail.
Ending the answer without a conclusion.
Students run out of time after listing points.
Fix: Always write one closing sentence stating the outcome.

Worked examples

Example 1

Alpha Ltd, a listed company, plans to disclose its upcoming merger terms only to a few favoured analysts. Advise the company under the fair disclosure principles.

Show the solution

Provision: the PIT Regulations under s. 12A of the SEBI Act, 1992 require a code of fair disclosure for every listed company.
Principle: UPSI must be disclosed promptly, uniformly and universally, avoiding selective disclosure.
Facts: merger terms are likely UPSI. Sharing them only with a few analysts gives them an unfair advantage.
Consequence: the persons and company risk action, and a person communicating UPSI other than in the ordinary course of business or as required by law may face a s. 15G penalty.
Advice: publish the terms to the stock exchanges first, route queries through the chief investor relations officer, and share nothing unpublished with analysts.

Answer: Alpha Ltd should not share the merger terms selectively. It should make them public promptly and uniformly, and handle all other UPSI on a need-to-know basis.

Example 2

Explain the role of the compliance officer and the structured digital database under the code of conduct. Who maintains the database and why?

Show the solution

Provision: the code of conduct under the PIT Regulations, 2015 is made under the framework of s. 12A of the SEBI Act, 1992.
Compliance officer: a senior officer who administers the code, reports to the board or chairperson, oversees compliance, keeps records and supervises pre-clearance and the trading window.
Database: a record of persons with whom UPSI is shared, with names, sharing details and identifiers such as PAN.
Maintenance: the board or its authorised person ensures it is kept with adequate controls, such as time stamping and an audit trail.
Reason: it shows who knew what and when, helps trace leaks, and prevents tampering with records.

Answer: The compliance officer administers the code of conduct and reports to the board. The structured digital database is kept under the board's responsibility and with internal controls so that UPSI flows can be traced.

Exam tips

Write the section numbers s. 12A and s. 15G of the SEBI Act, 1992 early in the answer.
Use the heading pairs fair disclosure and conduct to keep answers organised.
For facts-based questions, name who the insider is and what UPSI was involved.
Revise the exact PIT Regulations details, such as retention period and informant rewards, from your study material and do not guess figures.
Finish each answer with a one-line conclusion.

Practice questions from Prohibition of Insider Trading

Code of Fair Disclosure and Code of Conduct in other exams

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

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Code of Fair Disclosure and Code of Conduct: frequently asked questions

What is the code of fair disclosure?

It is a policy every listed company must frame and publish, to ensure UPSI is disclosed promptly, uniformly and without selective disclosure. A chief investor relations officer handles the process.

What does the compliance officer do?

The officer administers the code of conduct, reports to the board or chairperson, oversees compliance and records, and supervises matters such as pre-clearance and the trading window.

What is the structured digital database?

It is a record of the people with whom UPSI is shared, including their names and identifiers such as PAN. It must be protected with controls such as time stamping and an audit trail.

What is the penalty for insider trading?

Under s. 15G of the SEBI Act, 1992 the penalty is not less than ₹10 lakh and may extend to ₹25 crore or three times the profits made, whichever is higher.

Is section 195 of the Companies Act still the insider trading law?

No. Section 195 was omitted w.e.f. 9-2-2018. Insider trading is dealt with under the SEBI Act, 1992 and the PIT Regulations.