What is insider trading?

Insider trading means buying or selling shares using important information that the public doesn’t have yet.Key pointsInsider: anyone with access to secret company information, such as directors, employees, auditors, lawyers, or even friends and family they tell.UPSI (Unpublished Price Sensitive Information): news that can move the share price once it’s public, for example:

• Quarterly results
• mergers or acquisitions
• dividends or bonus issues
• big orders or contracts
• changes in top management

Simple example: a manager learns their company will be bought at a premium, buys shares before the news, and sells after the price jumps. That is insider trading.

The law and the penalties

India: SEBI (Prohibition of Insider Trading) Regulations, 2015

• You must not trade while you hold UPSI.
• You must not pass UPSI to anyone else (“tipping”).
• Trading window: insiders can’t trade during closure periods, such as before results.
• Insiders must report their trades above set limits.
• Penalty (SEBI Act, Section 15G): up to ₹25 crore or 3× the profit made, whichever is higher. Criminal cases can also lead to jail time of up to 10 years.

USA: Securities Exchange Act, 1934

• The SEC and the Department of Justice go after insider trading.
• Penalties include civil fines of up to 3× the profit, plus prison.

Legal vs. illegal insider trading

Not every trade by an insider is a crime.Legal

• Directors and employees buying or selling shares after the news is public
• Trades outside the trading window (not near results or big announcements)
• Trades under a pre-approved Trading Plan (allowed under SEBI PIT Regulations)
• Trades disclosed to the company and the stock exchange on time

Illegal

• Trading while holding UPSI
• Tipping: passing secret information to a friend or relative who then trades
• Trading through family members or someone else’s account (a “front”)
• Getting others to trade on your behalf

How SEBI catches it

• Watches for unusual volume or price jumps just before big news
• Tracks call records, emails, and WhatsApp chats
• Links trades to PAN, family members, and related accounts
• Its systems flag suspicious patterns automatically

Real cases and how to stay safe

Famous cases (USA)Raj Rajaratnam (Galleon Group): one of the biggest insider trading cases in US history; 11 years in prison (2011)Rajat Gupta (former McKinsey head and Goldman Sachs board member): passed boardroom information to Rajaratnam; 2 years in prison (2012)

How to stay safe

• Invest on public information only: annual reports, exchange filings, company announcements
• Ignore “sure-shot tips” on WhatsApp, Telegram or social media. Acting on them can make you liable
• If you work at a listed company, follow its code of conduct and trading window rules
• Disclose your trades when the rules require it
• When in doubt, don’t trade. Ask your compliance officer or a CA first