This is part 4 of our SEBI regulations series. It covers two rule-books that protect ordinary investors: insider trading rules (no one should profit from secret information) and takeover rules (minority shareholders get a fair exit when control changes).
Prohibition of Insider Trading (PIT) Regulations, 2015
Point
Detail
Full name
SEBI (Prohibition of Insider Trading) Regulations, 2015
Replaced
PIT Regulations, 1992
Based on
N.K. Sodhi Committee (2013)
Legal basis
Section 12A and 15G of the SEBI Act
Key terms
Term
Meaning
UPSI (Unpublished Price Sensitive Information)
Information not yet public that can affect the share price: financial results, dividends, mergers, change in capital, change in key managerial personnel
Insider
A connected person (director, employee, auditor, banker, etc., within 6 months before the act) or anyone in possession of UPSI
Designated persons
Employees and others named by the company who must follow trading rules
Compliance Officer
Usually the Company Secretary; monitors trades
Main rules
Rule
Detail
No trading
An insider cannot trade while holding UPSI
No sharing
UPSI can be shared only for legitimate purposes; a structured digital database (SDD) of recipients must be kept
Trading window
Closed from the end of the quarter until 48 hours after results are declared
Contra trade
Designated persons cannot do an opposite trade within 6 months
Trading plan
Insiders can pre-commit trades through a disclosed plan; cool-off period of 120 days before the first trade (cut from 6 months in 2024)
Disclosure by promoters/directors/employees
Trades worth over ₹10 lakh in a calendar quarter must be disclosed to the company within 2 trading days; the company informs the exchange within 2 days
Initial disclosure
Within 7 days of becoming a promoter/director/KMP
Penalty and reward
Penalty under Section 15G: up to ₹25 crore or 3 times the profit made, whichever is higher.
Informant (whistle-blower) mechanism (2019): reward of up to ₹10 crore (raised from ₹1 crore in 2021, approx) for information leading to recovery.
PFUTP Regulations, 2003
Prohibition of Fraudulent and Unfair Trade Practices: covers price rigging, circular trading, front running, pump and dump, mis-selling and fake news to move prices.
Front running = trading ahead of a big client order using that information.
Takeover Code: SAST Regulations, 2011
Point
Detail
Full name
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
Replaced
SAST Regulations, 1997
Based on
C. Achuthan Committee (TRAC, 2010)
Purpose
Fair treatment of public shareholders when someone acquires a large stake or control
Open offer triggers
Trigger
Rule
Initial trigger
Acquiring 25% or more voting rights → must make an open offer
Creeping acquisition
A holder of 25% to 75% can buy up to 5% a year (1 April–31 March) without an open offer
Change of control
Acquiring control (directly or indirectly) → open offer, whatever the stake
Maximum
Holding cannot exceed the maximum permissible non-public shareholding (75%)
Open offer rules
Rule
Detail
Minimum offer size
At least 26% of the total shares
Offer price
Highest of: negotiated price, volume-weighted average price paid in the last 52 weeks, highest price in the last 26 weeks, 60-day VWAP market price (if frequently traded)
Escrow
Acquirer must deposit money in an escrow account (25% of the first ₹500 crore, plus 10% above that)
Exemptions
Inter-se transfers among promoters, rights issues, buybacks, IBC resolution plans, among others
Disclosure
Acquiring 5% or more, and every 2% change after that, must be disclosed within 2 working days
Exam-ready one-liners
PIT Regulations, 2015 replaced the 1992 rules; based on the N.K. Sodhi Committee.
UPSI = unpublished price sensitive information.
Trading window closes from quarter end to 48 hours after results.
Contra trade is barred for 6 months for designated persons.
Insider trading penalty: up to ₹25 crore or 3 times the profit.
SAST, 2011: open offer is triggered at 25% voting rights.
Creeping acquisition: up to 5% a year for holders between 25% and 75%.
The open offer must be for at least 26% of shares.