NISM-Series-XV: Research Analyst · Legal and Regulatory Environment (NISM XV)

Insider Trading and Market Abuse Regulations: SEBI PIT and PFUTP

Updated 11 October 2026 · Fact-checked

Insider trading means dealing in securities while in possession of unpublished price sensitive information (UPSI). SEBI's PIT Regulations, 2015 ban it and require fair disclosure. PFUTP Regulations, 2003 ban fraud, manipulation and unfair practices such as front running. To solve questions, identify the person, the information and the act.

Understand Insider Trading and Market Abuse Regulations

Markets work only if investors trust that no one trades on secrets. Two sets of SEBI rules protect that trust. The SEBI (Prohibition of Insider Trading) Regulations, 2015, called the PIT Regulations, deal with trading on inside information. The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, called PFUTP, deal with fraud and manipulation in general.

An insider is a connected person, or anyone who has access to UPSI. A connected person is someone who, in the six months before the act, was associated with the company in a way that gives access to UPSI. This covers directors, employees, professional advisers and others. Certain relatives and others are presumed to be connected, but a person can rebut that presumption. A research analyst who gets a company's confidential data can become an insider.

Unpublished price sensitive information (UPSI) is information that is not generally available and that is likely to materially affect the price of the securities once it becomes public. The regulations list typical examples: financial results, dividends, change in capital structure, mergers, demergers, acquisitions, delistings, disposals, buybacks, and changes in key managerial personnel. Later amendments widened the list. Do not memorise it as closed. Ask whether the news is unpublished and price moving.

The core rule: an insider must not trade while in possession of UPSI, and must not communicate or procure UPSI except for legitimate purposes, performance of duties or discharge of legal obligations. Companies must publish a code of fair disclosure and adopt a code of conduct. Designated persons face trading window closures and pre-clearance for trades above a set threshold. Insiders may also defend themselves under limited routes, such as a pre-planned trading plan or a trade by one part of a firm separated by a chinese wall.

Front running is different. It means dealing ahead of a large client order, using advance knowledge of that order, to profit from the expected price move. It is treated as a fraudulent and unfair trade practice under PFUTP. Insider trading is based on UPSI about the company. Front running is based on knowledge of a pending order. Penalties for violations can include monetary penalties, disgorgement of gains, directions barring market access, and prosecution under the SEBI Act. Do not rely on a specific figure unless your NISM workbook gives it.

Key formulas to remember

UPSI test: UPSI = information not generally available + likely to materially affect price when published; Both limbs must be met. Public information is not UPSI, and trivial information is not UPSI.
Insider: Insider = connected person OR person in possession of / having access to UPSI; A person need not work for the company to be an insider. Possession of UPSI is enough.
Core prohibition: No insider shall trade while in possession of UPSI, or communicate/procure UPSI except for legitimate purposes, performance of duties or legal obligations; Applies even if no profit is made.
Connected person look-back: Connected person = associated with the company during the six months before the act; The six-month period is part of the definition.
Insider trading vs front running: Insider trading: UPSI about company | Front running: advance knowledge of a client order; Insider trading is under PIT. Front running is under PFUTP.
Regulations to remember: PIT = 2015 | PFUTP = 2003; Do not swap the years or the subjects.

How to solve Insider Trading and Market Abuse Regulations questions

Use this method for any scenario or definition question on market abuse.

1Read the facts and list who did what: the person, the information and the act (trade, tip or order).
2Decide whether the person is an insider: connected person or someone with access to UPSI.
3Test the information: is it unpublished and likely to materially affect price? If either fails, it is not UPSI.
4Identify the act: trading, communicating or procuring UPSI, or dealing ahead of a client order.
5Choose the regulation: company UPSI points to PIT. Manipulation, fraud, misleading statements or front running points to PFUTP.
6Check for permitted exceptions such as legitimate purpose, a valid trading plan or a chinese wall.
7Match the answer to the option that states the rule exactly, and discard options with absolute words such as 'never' or 'always'.

Quickest way: Three-question filter

When to use it: Use it when you have under a minute for a scenario MCQ.

Who: insider or not?
What: UPSI or public and trivial?
Which act: trading or tipping on company news is PIT; dealing ahead of a client order or manipulation is PFUTP.
If all three match, the action is a violation. Pick the option that names it.

Common mistakes in Insider Trading and Market Abuse Regulations

Treating only employees and directors as insiders.
The word insider suggests someone inside the company.
Fix: Remember the two limbs: connected person or anyone with access to UPSI. An analyst or a friend who receives UPSI can be an insider.
Calling any non-public information UPSI.
Students forget the price sensitivity limb.
Fix: Both limbs must hold: not generally available and likely to materially affect price.
Treating front running as insider trading under PIT.
Both involve advance knowledge, so they look alike.
Fix: Insider trading uses company UPSI. Front running uses knowledge of a client order and falls under PFUTP.
Assuming no violation if the insider made no profit.
People link a violation to gains.
Fix: Trading while in possession of UPSI is the breach. Profit affects the penalty, not whether a breach occurred.
Mixing up PIT 2015 and PFUTP 2003.
Both are SEBI regulations on market conduct.
Fix: Link PIT with UPSI and 2015, and PFUTP with fraud, manipulation and 2003.
Quoting penalty amounts or limits from memory.
Students try to be precise.
Fix: Learn the types of consequences: penalty, disgorgement, market bans and prosecution. Use exact figures only from the workbook.

Worked examples

Example 1

A company's board will announce a large acquisition next week. An external consultant working on the deal tells her brother, who buys the company's shares the same day. Which statement is correct?

Show the solution

The consultant is a professional adviser to the company, so she is a connected person with access to UPSI.
A proposed acquisition is not public and is likely to move the share price, so it is UPSI.
She communicated UPSI to her brother. This is not for a legitimate purpose or duty.
Her brother traded while in possession of UPSI received from an insider, so he too becomes an insider for the PIT rules.
This is a company-information matter, so the PIT Regulations apply, not front running.

Answer: Both the consultant and the brother have breached the PIT Regulations: she by communicating UPSI, he by trading on it.

Example 2

A dealer at a brokerage learns that a mutual fund client will place a very large buy order in a stock. Before executing it, he buys the stock for his own account and sells after the client's order lifts the price. What is this and which regulation covers it?

Show the solution

The dealer used advance knowledge of a client order, not UPSI about the company's affairs.
He traded ahead of the client order for personal gain.
This is front running.
Front running is a fraudulent and unfair trade practice, covered by the PFUTP Regulations, 2003.

Answer: Front running, prohibited under the SEBI PFUTP Regulations, 2003.

Exam tips

Expect scenario questions that ask you to choose between PIT and PFUTP. Decide by the type of information.
Watch for options that say information is UPSI merely because it is confidential. Check the price sensitivity limb.
Learn the example list of UPSI, but treat it as illustrative.
With negative marking at 25% of the question's marks, skip an option set only if two choices remain equally likely after the three-question filter.

Practice questions from Legal and Regulatory Environment (NISM XV)

Insider Trading and Market Abuse Regulations in other exams

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

CS ExecutiveInsider Trading Concepts

Insider Trading and Market Abuse Regulations: frequently asked questions

What is UPSI under SEBI PIT Regulations?

UPSI is information relating to a company or its securities that is not generally available and is likely to materially affect the price once published. Examples include financial results, dividends, mergers and changes in capital structure.

What is the difference between insider trading and front running?

Insider trading is dealing while in possession of UPSI about a company. Front running is dealing ahead of a client's large order using knowledge of that order. The first falls under the PIT Regulations and the second under PFUTP.

Who is an insider under the PIT Regulations?

An insider is a connected person or anyone who has access to, or possesses, UPSI. A connected person is someone associated with the company in the six months before the act in a way that gives access to UPSI.

What do the PFUTP Regulations cover?

They prohibit fraud, market manipulation, misleading statements and unfair practices in securities dealing. Front running and price rigging are typical examples.