Abstract

Insider trading refers to the unlawful practice of buying or selling securities based on non-public, material information, granting certain individuals an unfair advantage and undermining market integrity. This practice violates the principles of transparency and fairness, as it allows insiders, including corporate executives, government officials, and financial professionals, to exploit confidential information for personal gain. The legality of insider trading is determined by whether the material information has been publicly disclosed; transactions based on undisclosed information are deemed illegal. In India, insider trading has been a persistent challenge since the 1940s, driven by corporate officers leveraging privileged information. Over the decades, the regulatory framework has evolved significantly, with the Securities and Exchange Board of India (SEBI) at its forefront. Since its establishment in 1988, SEBI has played a pivotal role in regulating insider trading by fostering fairness, ensuring equitable access to information, and maintaining the integrity of India’s securities market. This paper examines the role of SEBI in preventing insider trading, with a focus on the SEBI (Prohibition of Insider Trading) Regulations introduced in 1992 and their subsequent amendments in 2015 and 2022. These regulations define insiders, prohibit the misuse of price-sensitive information, and promote the transparent dissemination of information to ensure market fairness. While SEBI’s initiatives have strengthened its ability to detect and prevent insider trading, challenges persist in ensuring comprehensive enforcement, particularly in developing markets like India. This paper highlights the continued prevalence of insider trading during periods of economic liberalization and the integration of global markets. It emphasizes the importance of dynamic regulatory updates and robust enforcement to maintain market integrity. SEBI’s evolving framework has been instrumental in building investor trust and ensuring a level playing field for all participants.

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